A new alphabet for Europe: Algorithms, big data, and the computer chip | Future Development - Brookings Institution

If the biggest disrupter of the last few decades was Deng Xiaoping—the father of modern China—the big disrupter of the next few decades may well be John McCarthy, explains Wolfgang Fengler, World Bank’s Lead Economist in Trade and Competitiveness for Eastern Europe and Central Asia and Indermit Gill, nonresident senior fellow in the Global Economy and Development program at the Brookings Institution.

Photo: Brookings Institution (Blog)

McCarthy, an American professor of Computer Science, is believed by many to be the father of artificial intelligence. Interestingly, the two have an epiphany in common. In 1979, Deng, a lifelong communist, visited the United States and came back a believer in market capitalism. In 1968, after a two-day visit to Czechoslovakia, McCarthy, who was raised as a communist by his immigrant parents, became a free-market Republican.

The ideas of computer scientists and mathematicians like McCarthy are radically transforming the way we communicate, and the way we make, buy, and sell goods and services. The changes will likely be so great that societies will have to reorganize government policy—rethinking how to regulate, what to subsidize, and whom to tax.

Change comes to Europe, again
Nowhere are these changes being considered more seriously than in Europe, where the technological transformations collectively called “Industry 4.0” are not unprecedented. At the end of the 19th century, as the Second Industrial Revolution unfolded in Western Europe, it brought mass unemployment in the countryside and squalor in the cities. Machines replaced peasants, who fled to cities and became the new urban poor. As they found new employment, mostly in the urban industrial sector, they joined a growing middle class. They would eventually transform Europe into a continent with the highest standards of living in the world...

Europe 4.0 organizes these technologies into three types (Figure 1):

• Informational technologies that exploit the exponential growth of data. Examples include the internet of things, big data analytics, and cloud computing. The fundamental driver is the falling cost of computing. The main effect is to lower coordination costs.
• Transactional technologies that digitize business models. Examples include the sharing economy, gig economy, digital platforms, and blockchain. The fundamental driver is the falling cost of matching demand and supply. The main effect is to reduce information asymmetries.
• Operational technologies that combine data with automation. Examples include robotics, 3D printing, artificial intelligence, and machine learning. The fundamental driver is the falling cost of routine functions. The main effect is to reduce labor costs by automating activities.

Figure 1: Industry 4.0 technologies

It is not clear whether these technologies will lead to greater concentration of production in leading regions or countries, or in larger enterprises that use more capital-intensive forms of production. For Europe, it matters a lot whether they do.
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Source: Brookings Institution