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Barry Devlin

As one of the founders of data warehousing back in the mid-1980s, a question I increasingly ask myself over 25 years later is: Are our prior architectural and design decisions still relevant in the light of today's business needs and technological advances? I'll pose this and related questions in this blog as I see industry announcements and changes in way businesses make decisions. I'd love to hear your answers and, indeed, questions in the same vein.

About the author >

Dr. Barry Devlin is among the foremost authorities in the world on business insight and data warehousing. He was responsible for the definition of IBM's data warehouse architecture in the mid '80s and authored the first paper on the topic in the IBM Systems Journal in 1988. He is a widely respected consultant and lecturer on this and related topics, and author of the comprehensive book Data Warehouse: From Architecture to Implementation.

Barry's interest today covers the wider field of a fully integrated business, covering informational, operational and collaborative environments and, in particular, how to present the end user with an holistic experience of the business through IT. These aims, and a growing conviction that the original data warehouse architecture struggles to meet modern business needs for near real-time business intelligence (BI) and support for big data, drove Barry’s latest book, Business unIntelligence: Insight and Innovation Beyond Analytics, now available in print and eBook editions.

Barry has worked in the IT industry for more than 30 years, mainly as a Distinguished Engineer for IBM in Dublin, Ireland. He is now founder and principal of 9sight Consulting, specializing in the human, organizational and IT implications and design of deep business insight solutions.

Editor's Note: Find more articles and resources in Barry's BeyeNETWORK Expert Channel and blog. Be sure to visit today!

Parts 1, 2, 3, and 4 of this series explored the problem as I see it and examined the views of some economists and other authors. This was supposed to be the final part, where I answered the question of the title. But, instead I have a bonus blog... inspired by Brynjolfsson and McAfee's Second Machine Age.

Addo Elephant B.JPG"The Second Machine Age: Work, Progress, and Prosperity in a Time of Brilliant Technologies" by Erik Brynjolfsson and Andrew McAfee, published as recently as last January, has been lying half-read on my Kindle desk for some weeks, mainly because its early chapters overlap with much of the technological material I'd referenced already. But a couple of tweets in response to Part 4 (thanks to Michael @mjcavaretta and Patrick @itworks sent me back to reexamine the content. There I found enough interesting thinking to fill a new post. I have to say that I was also hoping that the authors might come to my rescue as I searched for answers to my question above.

The central discussion of the book about the economic effect of advances in technology is couched in terms of bounty and spread. The former is the overall benefit accruing to the economy and the people whose lives are affected. The authors believe this bounty is enormous and growing, although they do admit that traditional economic measures, such as GDP, are no longer adequate. Nonetheless, my gut feel is that technology has, by many measures, improved the lot of humanity, or has the potential to do so. Spread is perhaps more easily quantified: it is the gap in wealth, income, mobility and more between people at the top and bottom of the ladder. And it has been demonstrably growing wider in recent years--which is socially and economically bad news. The authors' question then is whether the growth in bounty can counteract that in spread. Will the rising tide raise all boats, even though the super-yachts may be raised considerably further than the simple rowboats or even the rafts made of society's junk?

The news is bad. The authors report that "between 1983 and 2009, Americans became vastly wealthier overall as the total value of their assets increased. However... the bottom 80 percent of the income distribution actually saw a net decrease in their wealth." Combining this with a second observation that income distribution is moving from a normal (bell) curve towards a power law curve with a long tail of lower incomes, my conclusion is that the negative effect of spread is outpacing the positive lift of bounty. Note finally, that the above discussion is focused on the developed economies. A brief visit to one of the emerging economies should suffice to convince that the inequality there is far greater. The old saw that the rich get richer and the poor get poorer appears increasingly appropriate.

And Brynjolfsson and McAfee do end up agreeing with me in Chapter 11 as they sort through various arguments on the relative importance of bounty and spread. "Instead of being confident that the bounty from technology will more than compensate for the spread it generates, we are instead concerned about something close to the reverse: that the spread could actually reduce the bounty in years to come."

Turning their attention to the main underlying cause, the advance of technology and the possibility of "technological unemployment", they come desperately close to my argument: "there is a floor on how low wages for human labor can go. In turn, that floor can lead to unemployment: people who want to work, but are unable to find jobs. If neither the worker nor any entrepreneur can think of a profitable task that requires that worker's skills and capabilities, then that worker will go unemployed indefinitely. Over history, this has happened to many other inputs to production that were once valuable, from whale oil to horse labor. They are no longer needed in today's economy even at zero price. In other words, just as technology can create inequality, it can also create unemployment. And in theory, this can affect a large number of people, even a majority of the population, and even if the overall economic pie is growing."

But, they instantly--and, in my view, unjustifiably--veer back to the new economic orthodoxy that machines are more likely to complement humans than displace them and then focus on that scenario, suggesting that we must focus on equipping humans for this role through better and different education. While accepting that there are certainly instances where this is true, I see no evidence in recent years that this is the primary scenario we need to address. Only in Chapter 14, do they finally make some "Long-Term Recommendations" that suggest how changes in taxation might be required to rebalance the inequality in income and unemployment that they see eventually emerging. In this they echo both Martin Ford and Tyler Cohen, as we've seen earlier.

But I cannot help but feel this is far too little and far too late. So, what would I suggest? I believe we need some rather counter-intuitive thinking. And that is the long-promised topic of the real Part 5.


Posted March 4, 2014 5:46 AM
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3 Comments

My overarching objection to the bounty/spread framework is that a large percentage of technological "advances" create bounty by means of labor displacement -- that is, differential bounty is very often a function of differential spread.

Consider that labor constitutes a huge portion of the cost of almost anything (railroad transport, airline ticket, textbook, software product, ipod, viagra, etc -- remember, capitalized R&D is largely an accounting treatment of labor). Even rail transport, with a huge dependency upon fuel inputs, still has more than 75% labor cost content in the delivered product across the complete value chain.

So, it is not surprising that reducing "costs" almost always translates to reducing labor content -- either in the form of direct inputs or indirectly through reductions in use of other products and services which are themselves largely labor-dependent. Just about the only sort of exceptions to this reality are things with (real or invented) scarcity constraints on supply -- say diamond jewelry etc. Otherwise, most products take generally low-value raw materials and transform them via labor -- either unconcentrated labor in the form of untooled direct raw labor inputs, or concentrated labor in the forms of IP (education, training, technology, tools, R&D, etc), or some mix of the two -- which means that if you unpack a product back through the ENTIRE value chain (not just the final branded product, but all the way back to basic elements ripped from the ground), you will see that almost everything is mostly labor. Try it some time; take a 10K of a big public company you think has low labor cost, and dive into where the money goes -- to expenses and to capital projects. Behind those, you will find layer upon layer of subordinated suppliers and processes, each of which is adding labor to the process. "Reitree Health Insurance"? That's nothing more than salaries for doctors and nurses and drug research chemists and plan administrators and hospital janitors and building hvac contractors and brick masons and plumbing repairmen etc. So, what is reflected as "labor" cost at Cisco or Merck or American Airlines is a TRIVIAL FRACTION of the actual labor content of those company's products.

And, before someone objects that tech advances often have a topline-growing effect, I would say that is a localized phenomenon through which one player steals the revenue of another player by providing a product that more efficiently translates labor input into product output. Overall, this is no different in effect than the whole industry ratcheting down its cost structure.

The whole ballgame in modern financial economics is about labor. Consequently, the "productivity benefits" of technology are rarely anything other than removing labor inputs from the value chain somehow.

So, to my eye, the framework does not fit reality very well.

Hello great post

Hi Scott,
Thanks for your thoughts on Brynjolfsson and McAfee's bounty vs. spread model. Your dissection of value creation and it's ultimate tracing back to labor makes a lot of sense to me - but would need to be argued with the authors!

My take-away here is the second last paragraph: "the 'productivity benefits' of technology are rarely anything other than removing labor inputs from the value chain somehow." So, although you disagree with the bounty vs. spread model,you support my view that technology is affecting labor disproportionately?
Barry.

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