Silicon Valley Can’t Build The Future Alone

Has America lost its fascination with the tech industry? An article that went viral on CNBC suggests that the bloom is very much off the rose. Fashioned as a letter from a disappointed dad to an misguided son, it blasts the tech world for its miscues over the past year, from frat-boy antics to a sometimes appalling lack of transparency.

In a sense, this shouldn’t be surprising. Silicon Valley is no longer a collection of swashbuckling upstarts battling corporate behemoths. Today, Apple, Alphabet, Amazon and Microsoft are the most valuable companies in the world. Younger firms, such as Facebook and Uber, have already become powerful forces in our lives.

Perhaps most of all, the digital revolution is now two decades old and it has become very hard to move the needle. Compared with the personal computer, the Internet and the smartphone, smart watches and talking assistants don’t add that much value. To be truly useful, digital technology can’t stand alone, but must learn to empower industries in the physical world.

The New Energy Revolution

We mostly think about the cost of energy when we have to pay for gas at the pump or when the electric bill arrives, but it’s far more pervasive than that. The Institute for Energy Research estimates that it makes up 8% of the global economy, so roughly eight cents out of every dollar you spend goes to energy, which functions like a tax on your consumption.

Yet that will likely change over the next few decades. Renewables, like wind and solar, have already achieved grid parity in a number of places and costs are steadily decreasing. In fact, the US Department of Energy expects solar costs in 2030 to be half of what they are now. Experts also predict that electric cars will become more efficient than gas powered ones around 2022.

The main bottleneck now is energy storage, both to power electric cars and to handle the intermittency issues on the grid. The current technology, lithium-ion, is still too expensive and is nearing its theoretical limits, so completely new battery chemistries need to be developed. Nevertheless, there seems to be significant progress here as well, with several prototypes in the testing stage.

Add it all up and it’s possible — even likely — that our energy will not only be much cleaner, but cost half as much by 2030, which is like giving everybody a tax cut of 4%. Also, because the burden of energy costs hit low-income people harder, it will also positively impact income inequality.

Tackling Healthcare

One of the great achievements of the 20th century was modern medicine. A century ago, we had no effective treatment for simple infections, so even getting a scratch while working in your garden could turn deadly. Conditions like heart disease and cancer were basically untreatable. Once you got really sick, there was little you could do except wait to die.

Improvements in health care changed all that. Life expectancy in developed countries soared from about 40 years in 1900 to almost 80 years today, while child mortality and health inequality decreased significantly. Better health also had other benefits that were somewhat counterintuitive, like a decline in the birthrate and a reduction of population growth in developed countries.

However, modern medicine has also had some unintended consequences. When people live longer, they are more likely to get chronic conditions, like diabetes, cancer and Alzheimer’s, which are considerably more expensive to treat. Today, healthcare makes up 10% of global GDP — far more in the US — and costs are increasing significantly more than the general inflation rate.

Yet here again, there is cause for hope. New genomic techniques, CRISPR especially, are being used to treat cancer as well as hereditary diseases like hemophilia. This is still a very new area, so we’ve barely begun to scratch the surface, but it is already clear that there is great potential to improve outcomes while lowering costs.

Advancing Manufacturing

While many still think of manufacturing as an “old economy” business relegated to hollowed out rust belt towns and developing countries, in recent years it has become a hotbed of innovation. In fact, the Obama Administration set up a network of advanced manufacturing hubs to develop new techniques in a diverse number of areas, from fabrics to photonics.

One rapidly developing technology is low-cost collaborative robots. Unlike traditional robots, which need to be set away from workers in cages, these are intelligent enough to work alongside humans safely and easy enough to use that they can be reprogrammed in minutes. They mostly do mundane tasks, like loading objects onto a conveyor belt, which frees up workers to do higher level jobs.

Probably the most exciting area is advanced materials. Consider the new 787 Dreamliner. Because it uses far more advanced composite materials, it is 20% more efficient than its predecessor while achieving similar performance. Consider that the airline industry uses tens of billions of dollars worth of fuel each year, and that really adds up.

In the future, we can expect the cost of developing new materials to come down significantly. One company, Citrine Informatics, applies machine learning algorithms to materials databases in order to find valuable new compounds much faster and cheaper. It already enables firms to develop new materials 2-5 times faster and that should improve in time.

Manufacturing still makes up 17% of the global economy, so even a small improvement is worth a lot.

A Fundamentally Different Kind Of Innovation

Over the past few decades, we’ve come to see innovation as what happens when someone like Steve Jobs stands on stage and shows off a new device. Clearly, advances in energy, healthcare and manufacturing are not that. However, the potential impacts in these areas are far greater than the typical Silicon Valley gadget.

The OECD estimates that information and communication technologies contribute about 6% to the economies in developing countries — and probably far less than that in the world as a whole. Now compare that to energy, healthcare and manufacturing, which together make up about a third of global GDP, and it becomes clear how much potential there is.

Yet none of this can be achieved without digital technology, which can empower the industries of the future. As IBM’s Angel Diaz put it to me, “today we need more than just clever code. We need computer scientists working with cancer scientists, with climate scientists and with experts in many other fields to tackle grand challenges and make large impacts on the world.”

We’re entering a new era of innovation in which collaboration will be the new competitive advantage. The days when the digital world could stand alone in blissful ignorance of how the rest of the world does business are clearly waning.

– Greg

An earlier version of this article first appeared in Inc.com