“It was the best of times, it was the worst of times… we had everything before us, we had nothing before us…” I was searching for the right words to characterize our present times, when Charles Dickens’ memorable opening sentence from A Tale of Two Cities came to mind. One week I’m writing about our amazing digital revolution, and another I’m discussing the pain many are experiencing in our jobless recovery.
Are we “in the midst of the greatest one-time event in history,” as MIT professor Erik Brynjolfsson said in the opening keynote of the recent MIT Second Machine Age conference, or are we going through what he later called the great decoupling, - while GDP and productivity continue to grow, employment and income are declining. “Digital progress makes the economic pie bigger,” he added. “But there is no economic law that everyone, or even most people, will benefit.”
All-in-all, how’s our digital revolution doing? “Technology isn’t working: The digital revolution has yet to fulfil its promise of higher productivity and better jobs,” argues The Economist in a special report on Technology and the World Economy in its October 4th issue.
Its lead article reminds us that, for better and for worse, technological revolutions disrupt economies and societies. Electricity power, the internal combustion engine and other great 19th century innovations ultimately benefited everyone, but for the workers that made them happen, the experience of industrialization was truly harsh: “full of hard toil in crowded, disease-ridden cities.”
First is the rise of machine intelligence. Mid skill jobs and wages have been declining for the past few decades in advanced economies, and particularly since 2000. Many of these jobs, - which include blue-collar production activities as well as information-based white-collar ones, - are based on well understood procedures that can be described by a set of rules that machines can then follow. But, increasingly smart machines are now being applied to activities requiring intelligence and cognitive capabilities that not long ago were viewed as the exclusive domain of humans. More workers will see their jobs threatened. “The effects will be felt further up the skill ladder, as auditors, radiologists and researchers of all sorts begin competing with machines.”
In addition, while creating great wealth, digital economy companies have so far generated little employment compared to those of the industrial age. We’ve seen mostly the creative destruction side of disruptive transformations, with little of the creative construction that’s supposed to follow and lead to whole new industries and jobs. “Entrepreneurs can turn their ideas into firms with huge valuations and hardly any staff… With fewer than 50,000 workers each, the giants of the modern tech economy such as Google and Facebook are a small fraction of the size of the 20th century’s industrial behemoths.”
Up to now, the economic upheavals associated with disruptive technologies and global trade have been felt mostly in richer nations. In emerging economies, these same forces have created many jobs and raised their citizen’s incomes and standards of living. But, as technologies continue to advance, emerging markets are starting to experience what’s been called premature de-industrialization.
The traditional development path for emerging nations starts out by building low-margin, labor-intensive goods, then moves up to electronics assembly and components manufacture, and over time advances to complex design, engineering and management. This is the path followed by Japan after World War 2, then by the Asian Tigers, - Hong Kong, Taiwan, South Korea, Singapore. China, Brazil and others are now following this trajectory.
But, says The Economist, this development-through-industrialization model is no longer working. IT has enabled global firms to unbundle manufacturing and scatter their supply chains to countries around the world, while capturing most of the value by controlling the overall design and marketing of their products and through the financial optimization of their far-flung operations.
“Countries that can grab pieces of global supply chains are quickly rewarded with lots of manufacturing employment. But development that is easy-come may also be easy-go. Unless the economies concerned quickly build up their workers’ skills and infrastructure, wage increases will soon lead manufacturers to up sticks for cheaper locations.”
Technology is the leading cause of the broken links between innovation, productivity and jobs. But it’s also creating new opportunities to earn a living through e-entrepreneurship, - an entrepreneurial response to the digital economy.
Over a decade ago, online platforms like eBay and Craigslist made it possible to match buyers and sellers at great scale. Etsy has enabled a global craft economy, where around one million artisans around the world sell their creations. Since the launch of Apple’s app store, the app economy has been rapidly growing, providing work to over 750,000 in the US alone. Amazon allows authors to self-publish and market their works, while YouTube does the same for video producers. And in the sharing economy, a growing number of companies, - e.g., Airbnb, Uber, - make it possible for individuals and organizations to exchange a wide variety of goods and services with each other.
“New job and self-employment opportunities will provide some counterweight to the disruptive power of the digital revolution, but they are unlikely to offset it entirely,” notes The Economist. “This technological revolution could still hold many surprises. It may create vast numbers of jobs nobody has yet imagined, or boost the productivity of less-skilled workers in entirely novel ways, perhaps through robotic exoskeletons or brain implants. But for now, and despite the opportunities opened up by some new tech-based ventures, a generation of workers the world over is facing underemployment and stagnant pay. Governments will be sorely tested to deal with that.”
What can governments do to ease the transition to what we all hope is a better future? The report’s final article offered three key suggestions.
Raising the productivity of less-skilled workers. Often that simply means reducing red tape, including excessive occupational regulations that make it harder for workers to change careers or earn extra income, and tight land restrictions that reduce the supply of housing in affluent cities where most of the work is found.
Turning less-skilled workers into more-skills workers. Early in the 20th century, public investments in education in the US, UK, and other countries ensured that their newly industrialized economies had a supply of labor with the right skills. Something similar is now needed around the world. Advanced economies need a larger supply of highly skilled workers, and developing economies need to significantly improve their basic educational infrastructure.
Providing income support for those who find it hard to earn a living in this new world. As in past economic revolutions, the social safety net will also need to be strengthened. That might include measures like introducing or extending minimum wages, as well as wage subsidies to encourage participation in the labor force. And, if the impact of technology on jobs is really severe, governments might have to consider guaranteeing a basic income for all working-age adults that would be just sufficient to live on.
“Governments may need to develop new economic approaches, giving technology freer rein to transform production while providing workers with more of a cushion against the painful effects of that creative destruction. Technologies are tools without an agenda of their own, but their influence on society is never neutral. They blindly sweep aside the livelihoods of some people and enrich others. Politics must craft rules and institutions that harness technology to suit society’s values and vision of itself.”
Despite arguing that it has yet to fulfill its promise, The Economist remains bullish on the digital revolution.
“None of this means that the digital revolution is bad for humanity. Far from it. This newspaper believes firmly that technology is, by and large, an engine of progress. IT has transformed the lives of billions for the better, often in ways that standard income measures do not capture. Communication, knowledge and entertainment have become all but free. Few workers would want to go back to a world without the internet, the smartphone or Facebook, even for a pay increase.”