 Live from the Congress Center in London, England, it's theCUBE at MIT and the Digital Economy, the second machine age. Brought to you by headline sponsor, MIT. Welcome back to London, everybody. This is theCUBE and I'm Dave Vellante with my co-host Stu Miniman. We're here at the MIT IDE, the initiative on the digital economy. We're here in London, the birthplace of the first machine age, of course the steam engine, and now we're talking about the second machine age, Andy McAfee and Eric Brunyolson's excellent book, The Second Machine Age. It's New York Times bestseller. We've been riffing on it all morning. Hassan Bakshi is here. He's the director of Creative Economy Policy at Nesta. Hassan, welcome to theCUBE. Thanks for coming on. Please to meet you. So, tell us about Nesta. Why don't we start there in your role? What is Nesta all about? Nesta is an innovation agency that's based in London. We work with policy makers, with industry, and with first sector organizations to understand how to speed up innovation that's in the interest of the UK. So how long have you guys been around? How did it get formed and what's your role there? So we were set up in the late 1990s and usually for an innovation agency, we're funded through a national lottery endowment. That gives us some financial independence and it allows us to make some decisions, investments, and do policy and research for the longer-term good. And what does it mean to be the head of Creative Economy Policy? Well, one of the distinctive strengths, I guess, of the UK's innovation system is that we have a very strong creative and cultural economy. By that, I mean sectors, businesses, from film, video games, music, all the way through to B2B-facing sectors like advertising, publishing, architecture, software. So it's one of those strengths that the UK has. It accounts for the creative economy, we think accounts for something like 10% of value added in the UK economy. So it's one of those areas that as an innovation agency, we're interested in promoting that part of the economy. Okay, and so your role really is to promote innovation, to identify sources of innovation and catalyze them? That's right, I mean we see that, obviously the world is at a very interesting place. We think that the internet is a general purpose technology, it's sort of overhauling the way that businesses do the work they do. And we do research, undertake research, develop policies that can help unlock some of the barriers to innovation. All right, so Hassan, I understand some of the research you do ties in with what we're hearing today from the MIT ID event. What brought you here and how does what you do in your job tie into what we're hearing today? Sure thing. Well, as I say, a lot of our work at research is focused ultimately on public policy and how can government policy be optimized for possible innovation? One of the huge debates around the impact of future technological progress is what it means for jobs and for the labor market. Going back to my point about the UK having a very strong creative economy, we want to understand the extent to which our creative strengths can help ensure that the labor market is well placed to benefit from new technologies and jobs are actually being created in the back of these new technologies, not being destroyed by them. So we talked this morning with Eric Ronjonsen and he was saying there's kind of three types of jobs. The ones that are going to be working with machines, there's the ones that might fight with machines and there's ones that really aren't affected. Sounds like what you're trying to do is that running with the machines, is that right? I think that's right. I mean, our reading really of technological progress historically is that it gives rise to new opportunities, new forms of occupation that didn't exist at the time. So although we'll see lots of disruption in industries, the role of public policies to understand which of those industries are going to be disrupted, which of those industries are going to see greater opportunities and try and help innovation. Great, can you give us any examples of what's an up and coming field to be in or what kind of skill sets people need to learn to take advantage of these opportunities? One of the huge growth areas in the United Kingdom in the last 10 years has been the video games industry. It's an industry which traditionally has brought together the strengths of science, technology and the arts to innovate. There's been huge amounts of business model innovation, very user focused industry. And what we see and we're already seeing actually is that new technologies are being adapted by these sectors to please new forms of content and distribute content to individuals and users in new ways. So that's an example of a sector that we see as a growth sector for the future. Hasan, I wonder if you could comment on this. I think that a lot of people will sometimes look at protecting the past from the future, if that makes sense. And sometimes public policy gets put in place. Is that a headwind for you? Is it an acute problem? Is it something that you've figured out a way around? What's the climate like in that regard? One of the curious things I guess about technological progress and technology historically is that humans are obsessed about their relationship with machines, but at the same time, there's a deep insecurity there. And we see this time and time again. The creative industries where I do a lot of my work, we've seen waves of disruptive technological progress. Think about the music industry, film industry, concerns about piracy. And what we see time and time again is that markets are very powerful mechanisms for stimulating and incentivizing innovation. The commercial profit motive, ways of developing new business models that can adapt to these technologies and exploit them in new ways. And clearly one of the roles of public policy is to understand those parts of society that are disrupted and that feel some of the pain and design devised policies that can actually reduce some of that disruption. You know, you're talking about the video game innovations, particularly in the UK. We just heard Marshall and Austin talking about the network effect. And of course, the video games, that's going to sort of a relatively good trend, that network effect in terms of added value in the momentum. I wonder if you could talk about the network effect, you know, specifically in the video game area and in other areas generally. Well, one of the aspects, I suppose, of this network effect that Marshall drew attention to was this idea of the platforms as an environment to enable experimentation and research and development. We think about the video games industry, one of its striking features at the extent to which the relationship between games developers and their fans is such that content can be produced quite early and tested out with fans in live environments. The product can be improved in a live relationship with users in a way that we wouldn't think about films. You know, if you think about film and traditional creative content industries, they develop these rather large budgets, big pieces of content that should then go out to the public and now they succeed and they don't. What we see in the video games industry is using these powerful networks and relationships between their users to sort of iterate and develop prototypes and products that are developed over longer cycles. And that's a very good example, I think, of the network, the power of the network being exploited by business. I have this idea of platforms that Marshall talked about. Essentially he's saying platforms beat products, you know? But when you think about innovation and entrepreneurship, sure, it seems obvious, go build a platform. But it's also ambitious to build that platform. It's somewhat risky. How do you guide entrepreneurs and innovators in that regard in terms of the platform versus product? And what do you see there? It's a very sort of live issue, I guess, for public policy in countries like the UK and Europe, where if you look at the globally dominant internet platforms, they tend to be sort of US based. And so public policy makers are forever sort of thinking about how can they support businesses that can, you know, indigenous businesses that can sort of rise to compete with internet platforms. Well, does China have it right? I mean, basically, you know. Yeah, well, if you've got a very strong domestic market, if you look at countries like China and Korea, what you see there is actually global, globally competitive internet platforms, but they've obviously had very local, large domestic markets. The challenge in Europe, of course, is how can we sort of create a single digital market in the EU so that, in effect, we're competing with very large scale domestic markets, too. Yeah, because you get the population, but not really, because it's sort of diffuse. Yeah, I mean, the UK benefits particularly, you know, in the fact that the English is still the global language. There are senses in which that gives us advantages, natural advantages over other European countries, say. But the history of the European market has shown us is that when Europe can come together and break down some of the barriers to trading across countries in the EU, it can be very, very powerful, and the same applies to digital markets. But generally speaking, European companies haven't been able to achieve the scale economies of a Google or an Amazon or a Facebook. Is that unfair? I think no, I think that it is fair to say that, you know, if you look at the largest sort of internet platforms, they're clearly not coming from Europe, they're very large. There are some exceptions to that. It's like Spotify, think about music streaming, there are some exceptions. But the question really for public policy is whether that's bad for the consumer, because certainly countries like the UK have shown, I mentioned the creative industries, you know, creative economy accounting for 10% of GVA. It's possible to create a large amount of commercial value by having very thriving SME sectors. You don't necessarily need to create value added through these large internet platforms. The question is, is it good for the consumer? And that raises obviously issues for competition policy, you know, and there was a question that was asked of Marshall at the end, the extent to which the rise of these internet platforms can actually become, you know, does that necessarily mean more, plastic practices, those sorts of questions? Well, I mean, a demanding consumer base has always been a prerequisite, right, of any kind of global leader. That really hasn't changed, has it? That's true. I mean, if you think about, you know, the rise of the film industry and the dominance of Hollywood, it's often, you know, a natural argument is that there's been a large domestic market serve that. As I said, the issue for the EU is, is that although the UK is limited by the size of our population, we punch way above our weight in these markets already. You know, certainly the creative industries, I do a lot of my work, arguably, the UK's got the biggest creative sector in the world as a percentage of GDP. And therefore, you know, there is a real opportunity there for Europe. Why gaming? Why gaming? Does the UK have a particularly demanding gaming consumer base? Or was it more happenstance? Well, actually, so arguably, the UK actually gave birth to the, you know, interactive entertainment industry, which we now see in the form of video games. We've done a lot of work in Nesta with the games industry, people like Ian Livingston, who are, you know, there's something, I think quintessentially sort of creative in the education system in the UK, in the culture, you know, openness to difference, allowing different perspectives. That sort of multidisciplinary sort of environment which gives rise to new ideas, creativity. That's one of the reasons I think why the video games industry in the UK has been so dominant. How do you measure success? Is it startups? Is it innovation? How do you measure that? Is it productivity improvements? And how UK companies participate in that? Well, I'm an economist, so fundamentally, if you're trying to, you know, make some sort of judgment about whether the UK's economic performance in the long term is better than other countries, you need to focus on productivity. And of course, you'll all be aware that one of the long-standing problems that the UK has had is that we've had a productivity gap, a deficit in the productivity compared with our main competitors. And obviously, it's one of the reasons why fundamentally an organisation like Nesta exists is because we feel that we want to, you know, the public policy needs to be, public policy needs to focus on improving, addressing that deficit, improving innovation and productivity. I was in Canada just recently, this week, and I was listening to an economist, a guy by the name of John Hubbard, and he said, Canada has a productivity problem. Then how does he say that? They have an issue with productivity, not tracking growth that they'd like to see. Right. And he said that very clearly, when you compare it to the United States, the adoption of software is substantially lower. And that's, you know, the sort of Canadian reason, a strong balance sheet, if you will, but the productivity lags. My sense is that Europe adopts technology at a pace similar to the United States. Is that correct? And if so, or if not, how do you account for the productivity gap? Well, I think certainly if you compare the UK and the US, I mean historically the UK was an early investor in ICT, certainly back in the late 1990s, when we were beginning to see the ICT revolution in the productivity system. It's certainly in financial services as well. I mean, you know, pretty advanced, right? Sorry, carry on. Absolutely. So I think identifying what the basis of the productivity gap is probably will not reside in terms of the creative sort of digital sectors that we're talking about. You know, the UK has been a heavy investor in ICT. We've got a strong ICT sector ourselves. One has to look to, you know, probably to other areas, like the state of our regulation in our markets, how does that compare with the US? There have been long-standing concerns that there's not enough risk finance for innovative start-ups in the UK compared with countries like the US. There's also a concern that we don't, outside London at least, we don't have strong enough sort of creative and tech clusters that can compete globally with the likes of large clusters in countries like the US. So I think you're going to have to look into those sorts of micro-economic sources of where the discrepancy lies in productivity between the UK and other countries rather than simple stories about our levels of ICT investment. You know, it's interesting. One could observe Silicon Valley, the emphasis was, and maybe in some cases still isn't, core technologies, whether it's semiconductor or disk drives or networking technologies. But it's interesting to note from the book in the second machine age, the discussion around combinatorial technologies, combining different technologies, riding on top of this digital platform, if you will. And it seems like US companies in Silicon Valley in particular have been at the forefront of that as well. How much of that notion of combining technologies for innovation goes into your research, goes into the advice that you give entrepreneurs? Well, I guess it's undoubtedly the case that if one looks at the history of innovation and entrepreneurialism, typically people are borrowing ideas from others and it's a collaborative sort of, you know, it's a collaborative set of activities. So there's a critical distinction here between invention and the idea that you have the sole inventor sort of coming up with a sort of eureka moment and coming up with an idea and on the back of that exploiting that. There's a critical distinction between invention in that sense and innovation. And innovation is a successful exploitation, the commercial exploitation of these new ideas. And that's a very much collaborative, very much a social phenomenon and it informs the way that we view innovation and we research innovation. And also the way that increasingly public policy makers approach has support innovation. It's through supporting networks, it's about combining resources from different disciplines. It's about breaking silos which have traditionally separated people who are scientists on the one hand, say we're technologists and artists on the other. So I think yeah, I think that sort of more sophisticated understanding of what innovation is is something which is appreciated by public policy makers in Europe. Last question, Hassan. So what's your vision for the UK innovation economy? What do you want to see in the next five, 10, 15, 20 years? Well, my view and Nesta's view is that if we look at where the real strength for the UK economy lies, arguably one of the only sectors really where the UK can claim to be globally leading is the creative industries. So rather than seeing the creative industries, the sectors we've been talking about, video games, et cetera, there's been one of a number of growth sectors that public policy should back. Our view is that the priority of industrial policy is to make the UK more creative. We need to spread the growth of the creative economy. We need to invest in an education system that supports creative talent. We need to have an industrial policy that's focusing on backing these growth sectors. And that's where I think the future of the UK's economy lies. Hassan Bakshi, thanks very much for coming on theCUBE. Appreciate you sharing your insights with us. Good luck going forward. All right, keep it right there, everybody. We'll be right back. This is theCUBE, we're live from MIT IDE in London. We'll be right back.