What self-driving cars can teach us about the future: The power of innovation in shaping a traditio


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Imagine being a kid in the '60s. The United States and Russia are battling over the space dominance; at breakfast time, a new TV show, The Jetsons, is broadcasted; Stanley Kubrick is somewhere filming his masterpiece '2001 - A Space Odyssey', and a father, on the couch, is reading 'Do Androids Dream of Electric Sheep?'. All these things have in common the anticipation of a (near) future of perpetual innovation and radical changes in the daily life of Western citizens, possibly spreading to the Communist countries after the defeat of the USSR. They picture a world in which technology prevails, for good or worse.


The optimistic feelings of those living in an era of continuous growth, labour productivity increases and technological marvels, however, started to tumble with the economic crises of the '70s, suggesting that the real output growth the world economy had been experiencing until then was going to slow down. Despite that, in the following decades, life-changing technologies were introduced, impacting every industry from molecular medicine to communication, from transportation to food production. The Internet revolution, sparkled at the beginning of the new millennium, is only the last piece of a puzzle that hasn't been completed yet; considering that not even close to everyone in the world has been benefitting from the technological innovations of the last 20 years, it's reasonable to show at least some optimism.


Furthermore, researches performed by J. Fernald of the San Francisco Federal Reserve and S.Basu of Boston College, suggest that there might be a lag of around 15 years before the investments in information-and-communication technology guarantee the desired increases in productivity.


[The GDP growth rate has been reducing over-time. Pessimists and Optimists debate over the possibility of reaching a technological plateau]

Not everyone, however, shares the same opinion. A few years ago, Peter Thiel, co-founder of Paypal and early investor in Facebook, revealed his frustration towards what he deemed a concerning slowdown in innovation. According to the entrepreneur, the introduction rate of ground-breaking technologies (in transportation, biotechnology, energy) is being obstructed by stricter governmental regulations and the excessive focus on internet-based technologies, rather than the real world. On the one hand, it's curious to hear such remarks from the first professional Facebook investor, but it's understandable considering the nonsensical fuss that was created in the last few months around the Snap Inc. IPO, especially in the light of his memorable quote "We wanted flying cars, instead we got 140 characters" (2011). Mr. Thiel's reasonings sound extreme, but are more reasonable than it might seem. Every kid born from the '60s on has probably dreamt of driving a flying car or going to Mars. And if the odds of seeing people on Mars in this generation are constantly increasing, it's difficult to believe that flying cars will be the future of Earth transportation any time soon, especially in the consumer segment; it would probably be more likely that these kinds of innovation will first be available to premium segments or fleet operators, car-sharing and rental car companies.

Granted that Blade Runner's world is not the one the current and next generations are going to live in, what is, however, undeniable, is that transportation has been radically changing in the last few years and energetic entrepreneurs like Elon Musk have been fostering a process of democratisation of the high-end car industry. The case of autonomous vehicles is not only meaningful from a technical standpoint ('how is it technically possible that a car is able to function without a driver?'), but it is also of great interest because it exemplifies human evolution and the future of the relationship between mankind and technology. While it is true that self-driving cars are somehow a less sophisticated version of what it was predicted to be the standard in the third millennium, they represent more than that, because they bring with themselves a set of issues that will shape the society of the future and how people relate with machines in general, not only cars. Take improvements in the AI, for instance: the new car driver. If in 2004 a Defence Advanced Research Project Agency (DARPA) study ended with no driverless car being able to finish the predefined route, today we are close to have autonomous vehicles in the consumer segment.

A WEF report has recently highlighted intensifying concerns regarding the development of AI technologies, not only in terms of lack of regulatory provisions, but also, in more practical terms, the undesired role they will potentially have in the lives of everyone. While many commentators are positive regarding the automation opportunities in applications such as driverless cars and production robots, others (Stephen Hawking, Elon Musk, Bill Gates) fear that uncontrolled developments in sectors such as the autonomous weapons industry could escalate in unforeseeable scenarios, where it will no longer be understandable how machines have been designed and to what extent the decisions are being taken consciously by the machines itself. The regulatory body related to self-driving cars and AI is still at the infant stage.


While governmental bodies like the US National Highway Traffic Safety Administration (NHTSA) are in charge of proposing safety regulations and promoting the awareness related to the different kind of autonomous vehicle today present on the market (in the US), it is still in the hands of the single countries and federal states the capacity to decide how to regulate the market and if or to what extent allow self-driving cars to run on public streets. And such decisions do not seem the easiest to be taken.


[In blue, the states that have enacted a legislation towards self-driving cars. In green, those with an executive order. Source: MunichRE]


At the same time, technological disruption in the car industry will affect also other important players in the industry other than the producers: insurance companies, are a good example. According to the figures cited in a recent KPMG study, frequency of accidents has been falling over 50% in the last 15 years and will continue doing so, especially considering that more than 80% of car crashes are caused by human errors. Recent data from the Insurance Institute for Highway Safety can demonstrate that the design of autonomous vehicles and their safety systems are extremely successful at reducing accidents. While this will probably reduce by billions damage claims, liability exposures and save thousands of lives, it will be crucial for insurance companies to understand how they can possible re-engineer their business processes and actuarial models to survive a world where cars will be less and less frequently involved in accidents. How will premiums be calculated? What kind of insurance products will be sold? It's reasonable to think that if insurance costs for the consumer are going to decrease, prices for repairs in such technologically advanced cars are going to skyrocket.


As vehicles are going to be able to make autonomous decisions according to its software and learning capabilities, who exactly is going to be responsible in cause of failure and potential accidents? As technology advances, new legal issues and opportunities will arise for both companies and for the legal system.


 

WRITTEN BY FRANCESCO PATRONCINI FOR BESA

PLEASE DIRECT ANY INQUIRY TO AS.BESA@UNIBOCCONI.IT


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