What Singaporeans must know about 'innovation economy'

In his groundbreaking book, The Third Wave (1984), Alvin Toffler proposed that the human civilization has invented and experienced three types of wealth systems. Each wealth system is fundamentally different and has a distinct set of principles for wealth creation and distribution. The adoption of a new wealth system is followed by a major wealth shift from the old guards to the new innovators.

The first system was the agrarian (i.e. agricultural) economy which surfaced more than 10,000 years ago. Empires and landlords came to dominate the riches, by exerting militaristic forces. The second system, the industrial economy, sank its roots in the mid 18^th century. Multinational corporations and industrialists seized economic power through market forces. The third system, the knowledge economy, probably dawned in the 1950s with the invention of electronic computers. Today, we are witnessing the rise of megacities and entrepreneurs who are exploiting creative forces. The primary factor of production has shifted from land (agrarian) to labor (industrial), to ideas (knowledge).

Industrial Revolution in 2 Stages

According to some historians, the first industrial revolution (“IR 1.0”) was from 1760 to 1820 and the second (“IR 2.0”) was from 1870 to 1914. In IR 1.0, the foundational technologies of the new era were invented: steam engine, iron making, mechanization, locomotive, steamboat, and telegraph.

IR 2.0 witnessed the takeoff of the second generation innovations:   kerosene (invented: 1851), industrial steel (1856), internal combustion engine (1859), electric light bulb (1879), automobile (1889), and telephone (1898). The assembly line, which is the iconic production mode of the industrial era, was conceived then. Meanwhile, the early industrialists rose to the ranks of the richest tycoons on earth. Cornelius Vanderbilt (railway), John Rockefeller (oil), Andrew Carnegie (steel), Henry Ford (automobile), and J.P. Morgan (diversified) found unprecedented riches during this time. The corporations they helped to found: Standard Oil, United Steel, Ford Motors, J.P Morgan & Co., and General Electric Company, became the world’s largest corporations at the turn of the century.  

Knowledge Revolution in 2 Stages

Fast forward to 1950s, the knowledge economy began its germination. Core technologies of the new economic order were invented in the short space of 50 years: electronic computer (1946), transistor (1947), integrated circuits (1958), personal computer (1965), microprocessor (1971), mobile phone (1973), Internet (1974), search engine (1990), web browser (1993), and social networking (1997).  By 2010, the triple play of computing power, storage space and transmission bandwidth has been commoditized, bringing computing into the hands of the average office worker and consumer.

So, the wealth shifts again, now into the hands of those who help to pioneer the knowledge economy wave. In 2013, the richest individuals in the world made their fortunes in the information communications technology space: Carlos Slim (US$73 B), Bill Gates (US$67 B), and Larry Ellison (US$43 B) are ranked in the top five. Facebook co-founders Mark Zuckerberg and Dustin Moskovitz share the accolades as the youngest ever self-made billionaires with a combined net worth of US$17 Billion.

Similarly, the world’s most valuable companies are dominated by high tech corporations. Once valued at US$660 Billion, Apple Inc. holds the record as the most valuable company in history. In end-2012, there were seven ICT vendors among the top twenty most valuable corporations globally, compared to four oil & gas producers and three banks. It is evident that economic power has migrated from industrial to technology-based corporations.

Information Economy Came and Left. Where Were You?

Just as there were two phases in the industrial revolution, I anticipate that historians in the future would divide the Knowledge Revolution (KR) into two stages. As a marker, the Year 2010 is a good choice as the first generation technologies were widely diffused by then. KR 1.0 (up to 2010) saw the proliferation of dumb machines that put information into the hands of the office workers to achieve dramatic productivity gains. Hence, the Information Economy was born.

Innovation Economy - The Droids Are Hunting For Your Jobs

KR 2.0 (after 2010) is characterized by the rise of highly intelligent and connected machines that will assume an increasing portion of the specialized and analytical tasks previously performed by white collar professionals (e.g. accountants, researchers, news writers). Such artificial intelligence capabilities were initially thought to belong to the realm of science fiction but recent advancements have astonished the business, academic and even technology communities. Today, Wall Street stock traders are progressively being substituted by algorithmic trading bots; e-discovery software that costs just a fraction of paralegals is replacing its human counterparts in examining legal documents. It is no longer a question of “if” but “when” it will happen, and “what” types of jobs will be displaced.

In a landmark victory in 2011, IBM’s Watson computer beat two of the greatest players in Jeopardy!, the popular American general knowledge quiz show. Google’s self-driving car clocked its first 300,000 miles of autonomous driving without a single incident. iPhone’s Siri talking assistant has demonstrated natural language ability, which will be perfected in time to come. Narrative Science’s news writing software bot can generate fresh news articles that are indistinguishable from those by real journalists. Google Translate service may have inaccuracy issues currently but it is free, instantaneous and can handle more language pairs than most translation houses. These are signs of things to come. In another 5-10 years they will be faster, better and cheaper than employees in many specialized white collar functions.

Imagine some of the possibilities:

- Google Car + Siri = potential to replace millions of taxi drivers around the world

- Watson’s intelligence + Siri = replace call centre, helpdesk and telesales jobs

- Google Translate + Siri + Watson’s powerful knowledge base  = replace walking interpreters and personalized tour guides

- Watson’s powerful knowledge base + Narrative news software = replace researchers and analysts

- Google Search Engine + Watson’s intelligence + Narrative news software + Siri = replace personal assistants (It will understand your natural language request perfectly; write an on-demand report / article based on your search query; brief you before your next meeting; plan your travel itinerary and make real-time bookings; suggest the interesting local events to attend today; read to you customized daily news when you are driving; generate notes or transcribe full conversations of live meetings and seminars)

Computers are about to disrupt our cognitive skills and, if we are not careful, they could send us packing. We have to either shape up or ship out.

Welcome to Innovation Economy. Creative Passport Required for Admission.

The droids are the bad news. The good news is that the world is undergoing what Kleiner Perkins’ Mary Meeker referred to as the “re-imagination of everything”. This means that, where ever possible, software will digitize physical atoms into virtual bits across all parts of the economy and in our lifestyles. Following the footsteps of disrupted sectors (e.g. retail, music, publishing, media, marketing), many brick-and-mortar industries (e.g. education, healthcare, financial services, home appliances, energy) will be disrupted and re-imagined. Therefore, there will be abundant demand for 4I (imagination, invention, innovation, influence) type of skill sets in the coming decades to roll out these changes (Machines cannot do any of the 4Is well).  Unfortunately, not everyone has the right mindset and skill sets for 4I jobs. Only those with Creative Passports need apply.

In the Innovation Economy, actionable and high quality ideas are the most valued factor of production. This is often hard to understand as ideas, creativity, ingenuity, serendipity are soft and abstract concepts. Let me lift a simple example from my new book to illustrate this point. Imagine that a product designer at Apple Inc. discovers a novel material for iPhone that reduces US$0.50 from production cost and adds another $0.50 to the selling price per unit. This discovery would have added $1 per unit or $125 million per year (2012 shipment: 125 M units) to Apple’s bottom line. Assuming a $260 monthly minimum wage, the $125 million gain is equivalent to the cost of hiring a mind-boggling 40,064 Chinese workers for a full year! That is the economic potential and value of a good idea. How much would you be willing to pay this product designer a year? $10 million in cash and stock options perhaps? That is the incredible value of an innovator.

Singaporeans: Double Whammy Ahead

We are already familiar of the competitive impact of offshoring jobs and insourcing of foreign talent. Projecting a decade into the future, the double whammy of automating and offshoring white collar jobs is a frightening prospect for the Singapore workforce.  When another 200 million educated Chinese and Indians join the global market, the competitive pressures will be unbearable. By then, it will be too late to re-invent and upgrade ourselves, and we will be stuck with old economy jobs that could vanish in thin air.

As Thomas Friedman, NY Times columnist and Pulitzer Prize winning author, puts it “There is increasingly no such thing as a high-wage, middle-skilled job — the thing that sustained the middle class in the last generation. Now there is only a high-wage, high-skilled job. Every middle-class job today is being pulled up, out or down faster than ever. That is, it either requires more skill or can be done by more people around the world or is being buried — made obsolete — faster than ever.”

“What every employer is really looking for are people who not only can do their job but invent, re-invent and re-engineer their job because in a hyper-connected world, change is happening so fast.”

Here is some advice to prepare for the Innovation Economy:

-        Upgrade from an operator function to an innovator role

-        Learn to be entrepreneurial and creative

-        Re-invent constantly and apply new business models on yourself

-        Develop a deep specialty and pursue an in-demand niche

-        Acquire strategic and cross disciplinary perspectives

-        Deepen your engineering, scientific and technological expertise

-        Arm yourself with digital economy competencies

-        Unlearn old economy paradigms and practices that are obsolete.

The droids are not here yet but they are surely on their way. Are you ready?