MICROMULTINATIONALS WILL RUN THE WORLD / FOREIGN POLICY SPECIAL REPORT II ( VERY HIGHLY RECOMMENDED READING )

Micromultinationals Will Run the World
And cheap robots will help them do it.
BY HAL VARIAN
SEPT/OCT 2011

  

We live in an age of combinatorial innovation. There have been other such periods before: In the 19th century, standardized mechanical parts -- wheels, pulleys, belts, and gears -- were combined and recombined to create new innovations. In the 20th century, the components were internal combustion engines, electricity, electronics, and (eventually) microelectronic chips.

Today, a substantial amount of software development on the web involves connecting standardized components in novel ways. The Linux operating system, the Apache web server, the MySQL database, and the Python programming language are prominent examples: the LAMP components that serve as basic building blocks for much of the web. Once your application is developed, the cloud computing model offered by Amazon, Google, Microsoft, and others changes fixed costs for data centers into variable costs for data services, lowering barriers to entry and increasing the pace of innovation.
Just as the mechanical innovations of the 19th century led to dramatic changes in our way of life, the still-evolving computing and communication innovations of the early 21st century will have a profound impact on the world's economy and culture. For example, even the smallest company can now afford a communications and computational infrastructure that would have been the envy of a large corporation 15 years ago. If the late 20th century was the age of the multinational company, the early 21st will be the age of the micromultinational: small companies that operate globally.


Silicon Valley today seems to be overflowing with these enterprises. They can already draw on email, chat, social networks, wikis, voice-over-Internet protocol, and cloud computing -- all available for free on the web -- to provide their communications and computational infrastructure. They can exploit comparative advantage due to global variation in knowledge, skills, and wage rates. They can work around the world and around the clock to develop software, applications, and web services by using standardized components. Innovation has always been stimulated by international trade, and now trade in knowledge and skills can take place far more easily than ever before.

You have never heard of most micromultinationals and likely never will; like other small firms, most will go out of business or be acquired by larger organizations. But some, like Skype (from Estonia) or Rovio, the maker of the popular mobile-device game Angry Birds (from Finland), have become household names. Even the software components themselves are global creations: Linux started in Finland, Apache in the United States, MySQL in Sweden, and Python in the Netherlands.

The technological advances that have created this sea change in the virtual world are in the process of transforming the physical world in similar ways. Industrial robots have been around for decades, but they have always been big and expensive, so much so that only large companies could afford them. But advances in information technology have changed all that. It is now possible to make far cheaper robotic devices, which in turn means that physical services provided by robotics will get substantially cheaper.

A simple way to forecast the future is to look at what rich people have today; middle-income people will have something equivalent in 10 years, and poor people will have it in an additional decade. Think of VCRs, flat-screen TVs, mobile phones, and the like. Today, rich people have chauffeurs. In 10 years or less, middle-income drivers will be able to afford robotic cars that drive themselves, at least in some circumstances. The Pentagon's Defense Advanced Research Projects Agency has been funding autonomous-vehicle research at engineering schools for more than a decade, and that research has produced several highly functional prototypes that are now being commercialized.

Why should cars sit idle for 22 hours a day -- as most do -- when they could be robotic taxis, plugging themselves into an electrical outlet when not needed? Driverless cars could revolutionize transit and housing patterns; with traffic jams a thing of the past, their owners could enjoy an extra hour a day for work, conversation, or entertainment (or maybe just sleep).

And cars are only the beginning. Among other things, cheap robotics will have a huge impact on medicine. Many routine operations can now be conducted by robots, making for less invasive and less error-prone procedures. The technological challenges facing such innovations can be overcome. The real barriers to their deployment are cultural, legal, and regulatory.

Lest this all sound too optimistic, let me point out the obvious: Technology gives us great power, but that power can be used for evil purposes as well as for good. Terrorism -- which has benefited enormously from the same proliferation of information technology that has enabled micromultinationals and robotics -- will remain a problem, perhaps a growing one. Even without explicit threats, the unending complexity of systems that we rely on daily may lead to inconvenient, or even catastrophic, disruptions.

But the march of technological progress will continue. Over the past 300 years, technology has dramatically improved the quality of life for the world's developed economies. Now the rest of the world will get its turn.

Hal Varian is chief economist at Google.