Making the next production revolution inclusive open and secure
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Presentation to G7 ICT and Industry ministers by Andrew Wyckoff, OECD Director for Science, Technology and Innovation. See also oe.cd/npr
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Making the next production revolution inclusive open and secure
- 1. MAKING THE NEXT PRODUCTION REVOLUTION INCLUSIVE, OPEN AND SECURE G7 ICT and Industry Minister’s Meeting Andrew Wyckoff, Director Directorate for Science, Technology and Innovation, OECD Torino, September 25th, 2017
- 2. The digital transformation of economies and societies is under way…. NPR and digital technologies have become pervasive Automation is becoming widely deployed Artificial Intelligence emerges as a new technological paradigm
- 3. …and has unique characteristics that challenge traditional policy making… Whatsapp: 300 M users, 50B message/day, 55 employees Netflix: USD8.8B revenue, 3500 employees Dropbox: 300M users, 1200 employees “Scale without Mass”
- 4. 1990s Top-3 US Automakers • Revenues: 250B$ • Market cap: 36B$ • Employees: 1.2M 4 …that are largely based on a traditional economy…. 2014 Top-3 US Tech • Revenues: 247B$ • Market cap: 1T$ • Employees: 137K Source: “Competition at the digital edge: “hyperscale” businesses,” McKinsey Insights, accessed 4 March 2015 4
- 5. …affecting policies from trade to… Share of Sellers Exporting on eBay vs. Offline https://katisuominen.wordpress.com/page/2/
- 6. …to productivity, business dynamics and growth. ICT services Non-ICT services Note: Excluding the financial sector -0.2 0.0 0.2 0.4 0.6 0.8 1.0 Frontier firms Laggards Top 10% Top 2% -0.2 0.0 0.2 0.4 0.6 0.8 1.0 Frontier firms Laggards Top 10% Top 2% Source: Andrews, D., Criscuolo C., and Gal P. N., “The Best versus the Rest: The Global Productivity Slowdown, Divergence across Firms and the Role of Public Policy”, OECD Productivity Working Papers, 2016-05, OECD Publishing, Paris. The divergence in multi-factor productivity growth
- 7. • Need to rethink policies, in light of digital vs. analogue economy; • Is broad based and will affect all sectors / policies: there is no “digital industry” • Need for a proactive approach so as to maximise the benefits and minimise the downside. Implications for Policy Making
- 8. 8 NPR: A confluence of new technologies…
- 9. The shift is distinguished by data and its analysis… Autonomous machines and systems Artificial Intelligence Cloud computing Human- Machine integration System integration Internet of Things Big data Simulations Additive manufacturing (3D printing)
- 10. Implications for the nature of production and jobs... Source: WikiMedia, http://www.assemblymag.com and © General Motors, Chevy Volt 10
- 11. …the nature of capital investment… 11 Rolls Royce: Power-by the-hour New Holland : Precision Land Management AWS: Cloud Computing
- 13. …where the Internet becomes the new sea lane. 13
- 14. 4 Spear-Phishing Attacks by Size of Targeted Organization Openness needs to be accompanied by security, especially for SMEs 18 % 31 % 30 % 34 % 43 % 32% 19 % 31 % 25 % 22 % 50 % 50 % 39 % 41 % 35 % 0 20 40 60 80 100 2011 2012 2013 2014 2015 % Small businesses (1-250 employees) Medium-size businesses (251-2 500 employees) Large businesses (2 500+ employees) Source: OECD (2017), Key Issue for digital transformation in the G20, page. 94
- 15. • Rise above the Silos: take a whole-of-government approach; • Close the gap: foster SMEs competitiveness & help them seize digital era via finance, skills & diffusion; • Inspire innovation: promote high-tech start-up eco- systems; protect and enforce IPR; • Connect to the future: ensure access to 21st C networks; • Keep it open: protect the free flow of information; • Make it secure : foster cyber security for economic prosperity; • Put people at the center: share a human-centric vision of Artificial Intelligence. Filling the “Technology 4.0 / Policy 1.0” gap
- 16. Thank you Contact: andrew.wyckoff@oecd.org Twitter: @OECDinnovation Going Digital website: http://oe.cd/goingdigital Subscribe to our STI newsletter: www.oecd.org/sti/news.htm
Editor's Notes
- Thank you for the opportunity to speak. Governments need to improve their awareness of the digital transformation that is upon us; and prepare for some of the key challenges; this is the key focus of work that I direct at the OECD. With this perspective, I applaud the initiative of the Italians to place this high-up on the G7 Agenda and the OECD is very pleased to have assisted the Italian G7 Presidency with its people-centered focus.
- As many have said, this transformation is breathtaking: -- we all carry circa 1992 super computers in our pockets; -- 4% of the globe in 1998 to 40% in only 20 years; closer to 90% for the G7; -- the digital economy & society is here; -- And with it, automation that is likely to accelerate: whether the estimated displacement is 42% of jobs (Oxford) or 9% (OECD), the challenge is still enormous since most of those affected are already in the workplace; -- and less than 40% of workers in the OECD perform at Levels 2 or 3 (out of 5) in Problem Solving in Technology-Rich Environments; a number that drops to 15% for 55-64 year olds -- What’s more: the change is combinatorial and accumulative: as more people and things are digitised and connected, the data flows open up a range of new services, business models and fuels new technologies like machine learning and AI – No longer science fiction, but increasingly sitting on our kitchen tables.
- The digital transformation has some properties -- this is NOT business as usual. We have work underway that looks at 8 of these properties, - one of these is what we call -- Scale without mass – or the ability to scale up to billions of customers across the world with relatively low marginal cost…. …leading us to wonder what is a “small” business in 2017.
- This is in sharp contrast to the architype industry of the 1980s-90s – the auto sector – Just to use the “Big 3” from the US as an example – these firms required significant “scale” (employees, plant) scattered around the globe to serve about 10 million of customers By doing so, they had a footprint in many countries around the world, subject to your sovereign laws and policies. The top-3 tech firms on the other hand have roughly the same revenue (old data ) but a much larger market cap (27x) and almost an order-of-magnitude fewer jobs… …and they have products that are used around the world, but this reach does not result in much of an international physical presence
- …this has implications not only for tax policy which is in the news, but scale without mass enables e-entrepreneurs like those who sell on eBay who are “born global” which vastly expands markets for SMEs and may challenge Trade Policy and what is thought of as de minimus cross-border activity.
- This “scale without mass” will lead to new growth dynamics where those firms that “get it” may vastly outperform the rest. Our research suggests that in fact the lacklustre average productivity of the OECD conceals two offsetting trends: the high productivity of the frontier firms is cancelled by the laggards, and this gap has grown over time especially in the ICT-services sector (left hand side);
- Let me pause and draw 3 key implications for policy making: I would encourage a wholesale review of policies to ensure that they are fit for purpose in this digital era? Asking, is there another, new way to achieve the policy objective through different, perhaps digitally powered, means? Need for a whole of economy / society and hence government view since this is broad based and all sectors will be digital soon; We need to be proactive instead of reactive so to seize the benefits and minimise the challenges..
- The NPR is characterised by a confluence of technologies from robotics to big data to new materials .
- ….the common element across these technologies is digitalisation which allows these technologies to be combined and it is this that is revolutionary. For instance, the combination of: -- embedded sensors (IoT), -- connected via cloud computing and -- and throwing off data that allows “big data” analytics -- which enables autonomous machines and intelligent systems. This forms an eco-system with feed-back loops which will lead to further innovations.
- All these technologies are flowing into our manufacturing and services sectors which will be transformed by the data flows and their analysis. This will cause a shift in the topography of global value chains, as it has for this Philips shaver that was once made in China and now in Drachten, Netherlands, While on Dutch soil, it has very few workers thanks to almost complete automation. While it will not happen overnight, I think it will be prudent to envision that factories may go the way of the farm: highly automated with relatively few employees; But just as the “footprint” of the food sector is large, so will goods thanks to their transformation by data flows into services where jobs will be created,
- Data is transforming the nature of capital equipment across industries like aerospace, farming and all sectors that use computing And hence is converting investment from a capital good to a service and a yearly current expenditure. Implications for public incentives designed to encourage investment as well as gvt statistics on investment and productivity.
- And the arrival low cost production technologies like advanced robotics and 3D printing (right) may mean that fewer tangible goods may be exchanged but more intellectual property – like designs (left). This will alter the composition of trade and with it heighten the importance of IPR protection and enforcement
- And with this transformation, the Internet becomes the new sea lane for trade This reinforces the need for an Open Internet just like open seas and for extreme care to be exercised when placing rules on the movement of data. Data is variegated and not only characterises intermediate and final products; it facilitates exchanges and it is raw material for innovation.
- The origin of the Internet is as an open system which is a key factor for its success, but this makes it susceptible to security failures and breaches SMEs who may lack the resources – both in terms of finances but especially talent – are especially vulnerable; and as this figure shows – they are increasingly the target. Without trust, the digital economy will falter.
- A list of some of the priorities for navigating the transition; For the G7, it represents a unique group of advanced countries all of whom have been leaders in this area; and all of whom appreciate that inherent in the digital era is the hyper-connectivity that requires an international response The G7 provides a rich base of experience, trial and error and experimentation on getting policies right in this challenging area. The OECD stands ready to curate these experiences and support the dialogue.