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Insights / Blog / Business

Why we underestimate technological transformation!

February 25, 2015
Alain VeuveAlain VeuveManaging Director, AOE Switzerland

In the Investments section of my post “Fast is the new large!” I had written that our perception of technological development is linear, whereas in reality technological progress is exponential. It's apparent that many people who are involved professionally with technology aren't aware of this. They therefore grossly underestimate the technological potential of the next few years. The discussions I have had in the past few days regarding this topic also lead me to this conclusion.

Verbatim, I had written:

“... because technological developments occur on an exponential curve – something we don't realize though, because we use the past as a guideline for the future. It lies in the very nature of exponential development that it takes a very long time to even realize that the development isn't linear. For this reason our criteria for investing are based on this historically linear perception. We are therefore fundamentally deceiving ourselves, which is exactly why this is so dangerous.”

A first objection was how I could make such a claim, as there wasn't even a basis for it. I beg to differ; yes, there is. In his magnificent essay from 2001 “The Law of Accelerating Returns”, Ray Kurzweil dealt exactly with this subject matter in a more or less scientific way (and drew conclusions for the future). He examined the historic biological and technological development and can statistically verify that this development occurs exponentially.

Why exponential?

It's really quite simple: The technological development as we know it is basically nothing else but the continuation of evolution on a non-biological basis. Simply put, an evolutionary process consists of step-by-step improvement. The object undergoing the evolution is improved during every step and tested within its environment. The object is improved according to the trial-and-error principle in small increments by pursuing the functional variant.

It is this process that has made us what we are today; complex organisms capable of understanding complex issues and using this understanding to create an advantage. Ray Kurzweil is now saying that we are continuing this evolutionary process with the assistance of non-biological tools, as our biological body isn't capable of increasing intelligence at the same velocity. A simple example: Without the invention of the hammer the invention of the wheel would have taken more time.

In this process technology is rapidly improving and the rate of improvement is accelerating. If we consider Ray Kurzweil's historical data, we can see that this occurs with incredible reliability. Even enormous events such as World War II don't seem able to interfere with this development.

The exponential improvement of the exponential improvement

What Kurzweil also verifies is that the rate of improvement of the incremental steps is also growing exponentially. This is amazing at first glance, but is logical upon further inspection. The combination of different technology strands in total enables an acceleration of the entire technological evolution. A (simplified) example: The rapid decoding of the human genome was possible, among others, through computer technology; the insights about DNA help us to better understand how the brain functions, which in turn enables us to develop better computer technology.

What is the result?

The result from all of this is that we will witness development in technology during the next decades that will eclipse everything we have previously seen. Things will be possible that we currently can't even imagine. And they will be possible – not in 200 years but in as little as 20. Kurzweil has several points to make regarding this. I find his calculations with respect to processing power particularly impressive. Kurzweil makes the following statements:

  1. We will achieve processing power equivalent to that of a human brain for 1,000 Dollars in 2023.
  2. We will achieve processing power equivalent to that of a human brain for 1 Cent in 2037.
  3. We will achieve biological processing power equivalent to that of the entire human race for 1,000 Dollars in 2049.
  4. We will achieve biological processing power equivalent to that of the entire human race for 1 Cent in 2059.

Ray Kurzweil, who was been dealing with this subject for a long time, also made a number of micro-predictions that have all come true. This isn't particularly surprising as all he did was to extend the historic exponential curve for these predictions.

Why most people underestimate development

If we try to imagine today what will happen then it sounds surreal and we are tempted to say that everything will take a lot longer. Why? Simply put, because our perception of the past centuries is that of slowly developing progress. Here's what Kurzweil has to say about this:

From the mathematician's perspective, a primary reason for this is that an exponential curve approximates a straight line when viewed for a brief duration.

Thus, for example, one hundred years in this case are a relatively short time. We therefore perceive technological development as linear and project this perception into the future, whereas the actual technological progress is making far greater strides.

Because we double the degree of progress every decade, we will observe the development of a century in a mere 25 years – measured against the degree of current progress.

Can this growth continue?

Kurzweil says "yes" and describes possible ways to achieve this. However, a lot of this is simply inconceivable to most people. And he describes a world in which, for the most part, people living today would not want to live. Is this bad? I say "no". A simple mental experiment makes the point: Would a person living in the 17th Century want to live the way we do today? Probably not. Would our living environment and our social interactions caused bewilderment? Likely a lot. Our perception and attitude toward it will grow accordingly.

Ray Kurzweil is surely also a freak who blindly assumes that man will literally use all new technology for himself as soon as it becomes available. For this he is often criticized. Though I also believe that all available technology will be utilized sooner or later, I also think that an adoption by society of the technology in question primarily depends upon societal parameters. Kurzweil consistently excludes these parameters with something approaching religious zeal.

One should not be tempted, however, to point to as justification for dismissing the “Law of Accelerating Returns” as complete and utter nonsense. Too often, Kurzweil could verify the appropriate development based on historic data, too often, his predictions were correct, at least until now.

It is obvious, though, that the next decades will bring technological progress that will fundamentally alter our society and also our economy. Nearly all existing structures will be redefined. That which we call Digital Transformation is just the humble beginning of a profound and irreversible technological revolution.