Wednesday, June 20, 2018

The Impact of Artificial Intelligence on Innovation: An Exploratory Analysis

The title of the paper is the title of the post. I am taking notes as I read the analysis. When assessing the importance of research, I turn to Michel Foucault. I am interested in the breaks of history. At these moments, the delineation is between the history that was and the history that will be. How does economic history change? The abstract piques such interest:

"We find strong evidence of a 'shift' in the importance of application-oriented learning research since 2009 (relative to developments in robotics and symbolic systems research), and that a significant fraction of this upswing in application-oriented learning research was initially led by researchers outside the United States."

The suggested inflection point is 2009. That works on a number of levels. Economically, that's post-Great Recession. Technologically, that's post-smart phone and Amazon Web Services (i.e. cloud computing). Echoing the "Second Machine Age", the way the world worked changed. In conventional understanding, 2009 ushers in a new round of economic restructuring. As I continue through the paper, I will be searching for evidence of this epochal break (episteme in Foucault lingo).

I hope that the abstract itself, particularly the second half, has your full attention.

Bigger than a steam engine: "artificial intelligence also has the potential to change the innovation process itself, with consequences that may be equally profound, and which may, over time, come to dominate the direct effect."

That's an impressive introduction and a big contract to fulfill with the reader. The authors posit a positive Riemann sum, the slope of the innovation slope will change. It has changed. Fair to ask how do they know this to be true?  The boldness is gobsmacking.  Empirically (albeit anecdotally) they deliver.

I can vouch for the anecdotes. I've seen the same in Loudoun County. What we know is transforming because how we know is different. This is a change on par with the Enlightenment, not the Industrial Revolution.

"But whether or not Atomwise delivers fully on its promise, its technology is representative of the ongoing attempt to develop a new innovation 'playbook', one that leverages large data sets and learning algorithms to engage in precise prediction of biological phenomena in order to guide design effective interventions."

As a result, scientific inquiry itself will change to take advantage of the new tools. Cleveland should take a leadership role in developing such tools. This is the knowledge society, not the knowledge economy.

Take a gander at this sentence:

"while some applications of artificial intelligence will surely constitute lower-cost or higher-quality inputs into many existing production processes (spurring concerns about the potential for large job displacements), others, such as deep learning, hold out the prospect of not only productivity gains across a wide variety of sectors but also changes in the very nature of the innovation process within those domains"

If you will, the knowledge economy application of AI is the more efficient production processes. The knowledge society is the change "in the very nature of the innovation process". The knowledge society is the invention of a method of invention: As the Enlightenment is to the Industrial Revolution; artificial intelligence is to ?

Coming to my mind is Theodore Porter's book, "Trust in Numbers." AI gives social scientists the power they thought they had during the era of logical positivism. We didn't have the right telescope to match our ambition. Now we do.

Betting this part toward the beginning will resonate:

"We focus on the interplay between the degree of generality of application of a new research tool and the role of research tools not simply in enhancing the efficiency of research activity but in creating a new 'playbook' for innovation itself."

A new playbook for innovation itself is Enlightenment 2.0.

I'm five pages in and completely dazzled.

Brilliant: "while developments in robotics have the potential to further displace human labor in the production of many goods and services, innovation in robotics technologies per se has relatively low potential to change the nature of innovation itself."

So the shift noted is network analysis. That's cool in and of itself as a way to identify epochal breaks. Something to keep in mind going forward. Finishing Section I, we are on solid footing for understanding this round of economic restructuring.

The heart of section 2 is the following distinction:

"'GPTs' are usually understood to meet three criteria that distinguish them from other innovations: they have pervasive application across many sectors; they spawn further innovation in application sectors, and they themselves are rapidly improving."

From the literature on general purpose technologies, that's the litmus test. Deep learning, not robotics, passes. Therefore, deep learning can drive economic restructuring.

Another important concept  is the "invention of a method of inventing" (IMI). This "economics of research tools" is a useful way to think about knowledge society. GPTs cause breaks in economic history. IMIs cause breaks in knowledge history. To be an IMI, AI should change the paradigm of basic research. That's where "The Book of Why" might help with your conceptualization of knowledge society. Back to the paper:

"The invention of optical lenses in the 17th century had important direct economic impact in applications such as spectacles. But optical lenses in the form of microscopes and telescopes also had enormous and long-lasting indirect effects on the progress of science, technological change, growth, and welfare: by making very small or very distant objects visible for the first time, lenses opened up entirely new domains of inquiry and technological opportunity."

How does AI allow us to see things we've never seen before? My Janelia Research Campus anecdotes answer that question in an affirmative way. A bacterial infection is a general condition that we can now associate with specific organisms and target treatment (i.e. precision medicine). This is a paradigmatic shift in well-being knowledge. The same could be said for identify the specific causes of health disparities.

On a sour note, we are out on own defining the knowledge society:

"Mokyr (2002) points to the profound impact of IMIs that take the form not of tools per se, but innovations in the way research is organized and conducted, such as the invention of the university. GPTs that are themselves IMIs (or vice versa) are particularly complex phenomena, whose dynamics are as yet poorly understood or characterized."

That we will understand these dynamics as no one has done is daunting. Onto section 3 ...

The authors work through the history of AI. Symbolic systems is the AI that has been around for decades. The paper has already covered the other two categories by distinguishing between robotics and neural networks. The break in history:

"in the mid-2000s, a small number of new algorithmic approaches demonstrated the potential to enhance prediction through back propagation through multiple layers"

That's a major breakthrough for the neural networks category of AI, which had been around for about 25 years with disappointing results. This is the birth of AI as a GPT and IMI. Conveniently, they present a matrix:


Deep learning is characterized as both a GPT and an IMI. I should say, it could be a "general purpose IMI". Section 5 attempts to find evidence in support of that bit of speculation. I didn't read through the methodology closely since I'm not concerned with replication. And guess what? That's all section 5 is, a description of the methodology with the raw results.

Section 6 evaluates deep learning as an empirical GPT:

"The first insight is that the overall field of AI has experienced sharp growth since 1990."

"there is a steady increase in the deep learning publications relative to robotics and symbolic systems, particularly after 2009"

"there does seem to be an acceleration of learning-oriented patents in the last few years of the sample"

"By the end of 2015, we estimate that nearly 2/3 of all publications in AI were in fields beyond computer science."

Again, the time line with breaks fits my Foucault model. It also shows the attributes of a GPT. But we are still very early in the game.

Section 7 evaluates the IMI impacts. What's at stake:

"If it is also a general purpose IMI, we would expect it to have an even larger impact on economy-wide innovation, growth, and productivity as dynamics play out—and to trigger even more severe short run disruptions of labor markets and the internal structure of organizations."

The paper goes on to describe these disruptions to what I would now comfortable identify as the knowledge society. This is what you must help the new President of CSU to understand.

Section 8 is the conclusion. Since it is only two paragraphs in length, I will post the second one here:

"Our preliminary analysis highlights a few key ideas that have not been central to the economics and policy discussion so far. First, at least from the perspective of innovation, it is useful to distinguish between the significant and important advances in fields such as robotics from the potential of a general-purpose method of invention based on application of multi-layered neural networks to large amounts of digital data to be an 'invention in the method of invention'. Both the existing qualitative evidence and our preliminary empirical analysis documents a striking shift since 2009 towards deep learning based application-oriented research that is consistent with this possibility. Second, and relatedly, the prospect of a change in the innovation process raises key issues for a range of policy and management areas, ranging from how to evaluate this new type of science to the potential for prediction methods to induce new barriers to entry across a wide range of industries. Proactive analysis of the appropriate private and public policy responses towards these breakthroughs seems like an extremely promising area for future research."

2009 is the temporal break. IMI concerns the knowledge society (the economy of basic science). GPT is the knowledge economy.



Tuesday, June 19, 2018

The Two Tomorrows

The report starts out with the good news, the "icing". Beneath the surface, the region is merely average. That's a far cry from Jon Pinney's Rust Belt shaming of Cleveland at the City Club. I figure the Fund must be politically polite. The report is not as frank as the introduction claims it is. That said, this is a damning statement: "We hope the greater Northeast Ohio community will undertake an honest reckoning, too. Together, we can do better than just icing." Ouch.

The summary of the headwinds the region faces is weak. I don't see much evidence of understanding how disparities, for example, are connected to economic restructuring. The main initiative is job creation, but in terms of quality employment. The goal isn't more jobs. Training and access follow from that. Hopefully the report addresses bifurcation. The executive summary does not. Job creation itself can be the cause of "systemic race-based inequities".

Off the bat, in the meat of the report, bifurcation is raised. The authors seem to lay this at the feet of the legacy economy. The only ding for the emerging industries is an over-reliance on one or two. The prescription for that is economic diversification. But what about bifurcation in regions that have chosen to be "extraordinary"? Perhaps that comes later with workforce development and access.

The brief section on digitization is promising. The emerging economy is connected with bifurcation of wages, much like Drucker does. The last paragraph is a giant nothing-burger:

"Northeast Ohio must prioritize driving innovation into existing industries, foster flexible and responsive job preparation activities that can keep up with new market demands and purposefully build in digital access for disconnected residents currently cut off by a growing digital divide."

Is everyone going to get a high tech job? I don't see how this would solve the bifurcation problem stemming from digitization. I would like to see some regional examples of what success looks like.

I'm not going to go into racial inclusion discussion unless I see it integrated into the other parts of the report. So far, it's just in there to be in there. I do appreciate the traded sector discussion. Dovetails nicely with our ironic demography lens. Lots common ground, common language here.

The interrogation of the job growth metric is also good. Pittsburgh is the tortoise. Charlotte is the hare. We all know who wins the race.

I gather the Fund is tapping the expertise at Brookings for this report. I won't make a normative judgment on that other than to point out that bifurcation will likely get worse with such prescriptions.

The job growth strategy is a grab-bag of the usual suspects. Nothing new there. Just stay the course and mind the conventional wisdom. More or less, the same could be said of the approaches to job preparation. The region just has to execute better? There aren't any new ideas here. Nor are there new lenses to understand the problem.

I'm wary of the job hubs approach. Exogenous shocks could render large transit infrastructure investments moot. I'm looking at you, Denver. I think the region would be better served by first understanding what is causing the spatial mismatch.

I like the call for better, more appropriate metrics of success. Brookings is providing the heft here. I would have looked at Fed stuff. This should be a regional conversation, not a canned product.

Lastly, after perusing the end notes, I can confirm the heavy hand of Brookings. This is their baby. One note that caught my eye: "Peer economies include Baltimore, Buffalo, Cincinnati, Detroit, Milwaukee, and Pittsburgh MSAs. All GMP data from the Bureau of Economic Analysis." That looks like a cohort of demographic decline large metros. The goal appears to be better than the average peer.

Thursday, June 14, 2018

Produce and Export

Some cities, like Pittsburgh during the heyday of steel, produce. Other cities, such as no-other-reason-to-exist Las Vegas, are palaces of consumption. Most places are somewhere in between. Better to produce than consume is the idea behind Producer Cities.

As manufacturing employment waned, while output kept growing, legacy producer cities imploded. The Baby Boom 1950s were not forever. Demographic decline would change how we understand economic development:

“Pittsburgh is not a region with a lot of population growth,” said Chris Briem, regional economist at the University of Pittsburgh University Center for Social and Urban Research. “Two-thirds of the economy is made up of jobs providing goods and services to the local population. So comparing Pittsburgh, a place without a lot of demographic growth, to places that are experiencing demographic growth, you’re going to get different pictures—and not a picture that’s saying one region is doing better than another in terms of its fundamental economic competitiveness.”

When children made up the lion's share of population change, job growth is tied at the hip with consumption. But consumption economies are, by definition, local. The geography of wages for local services is small in area and therefore available to anyone living there. The competition for minding the store till is fierce. Paychecks for such a job are low.

Which jobs demand a high paycheck? Careers that provide goods and services outside the regional market. The world competes for your work.

Cities that capture more labor that the world wants is a producer. Cities that capture more labor that the town wants, is a consumer. Producer Cities will bring macro wealth to micro well-being.