How to drive new technology in promising directions? An old story repeating itself

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How to drive new technology in promising directions? An old story repeating itself

14 Sep, 2018 09:16 am

William De Vijlder, BNP Paribas' Chief Economist, gives an insight into the positive footprint of technology on the economy, the workplace and the society today.


Using a search engine for the topic 'robot anxiety' provides many articles about psychological barriers in using robots. What better illustration of the increasingly important role robots play in the economy, both manufacturing and services. When I was looking for references about robot anxiety I was more thinking of concern, not to say fear, about the introduction of robots, and what this may imply in terms of job losses. The two interpretations of robot anxiety can be considered as the two sides of the same coin: modern economies need robots but they also need to adapt to the increasing use of robots. Broadening the discussion to the economic consequences of technological innovation, it is useful to start outside the field of economics and to look at technology.

Simply put, technological progress is unstoppable so this makes the application of inventions unavoidable. This implies that government should not only focus on how to cope with the negative consequences of technological change (not all consequences are positive), but also on stimulating research, the objective being to foster the value creation in the country at large. In the end everybody becomes a stakeholder: researchers for their recognition and the financing that goes with it, companies which innovate, their financiers, their staff, and the government directly or indirectly. These benefits will in turn contribute to the growth of taxable income which is necessary to finance infrastructure, stimulate R&D but also to pay for the costs of ageing. Hence, it is clear that technological progress and its impact on productive efficiency is not only unavoidable, it is also necessary, it is an objective of economic policy and is part of the solution to the challenges of an ageing society with a slowing potential growth rate.
"Hence, it is clear that technological progress and its impact on productive efficiency is not only unavoidable, it is also necessary, it is an objective of economic policy and is part of the solution to the challenges of an ageing society with a slowing potential growth rate."
How come then that a survey conducted by the Pew Research Center published in 2017 showed that 72% of Americans are worried about a future where robots and computers can do many human jobs?[1]

One can argue that we have been there before.

             Luddites smashing a loom in 1812

Indeed, considering technological progress as a threat has a long history, think of the Luddites in the UK in the early 19th century demolishing textile machines. The US Congress in 1964 authorised a National Commission on Technology, Automation and Economic Progress, charged with a study of past and current effects of technological change and to make recommendations on how to channel new technology in promising directions. One of its conclusions was "To say that technological change does not bear major responsibility for the general level of unemployment is not to deny the role of technological change in the unemployment of particular persons in particular occupations, industries, and locations. Economic and technological changes have caused and will continue to cause displacement throughout the economy. Technological change, along with other changes, determines who will be displaced." [2]

More recently, we have seen a proliferation of books and studies about the impact of robotisation and machine learning and the broad media coverage they have received has made people at large aware of what may come. Against this background it is comforting to see in the Pew Research Center survey that "few of today's workers expect that their own jobs or professions are at risk of being automated. In total, just 30% of workers think it's at least somewhat likely that their jobs will be mostly done by robots or computers during their lifetimes":  worried at a macro level, relaxed at the micro level. Governments and companies should reflect upon this puzzling result: are households overestimating how safe they are? If so, will they make the necessary investments in training and skills upgrading so as to be easily redeployed if they would lose their job after all? Joseph Schumpeter explained in the early 1940s the disruptive nature of innovations. The innovator gains a competitive edge and makes abnormal profits: 'abnormal' because higher than the incumbents thanks to the use of new technology, but also abnormal from a longer term perspective. Indeed, eventually, imitators will erode the competitive advantage of the innovator and his profitability, which will decline and hence normalise. This process which is rooted in creativity and the capacity and courage to innovate is highly disruptive. Incumbents may be driven out of business with huge consequences for employment. Innovation creates jobs demanding new skills but destroys other.

The theory of creative destruction may be about 80 years old but the broad principles still stand: robotisation, automation, artificial intelligence create enormous value for some (the innovator is rewarded for his intelligence, vision, risk taking and entrepreneurship) and has benefits for society at large: lower prices implying increased purchasing power, productivity gains, new job opportunities, investment possibilities, an increase in the tax base. However, for many other it poses huge challenges. People losing their job may struggle to find a new one, because of skills mismatches, age, geographical immobility, etc. Interestingly, population ageing may help in alleviate the impact of this displacement effect. The declining labour force in Japan has created a supply shortage on the labour market and contributed to a significant increase in the participation rate of elderly people. Many western countries are expected to follow Japan's lead. Already today, admittedly for cyclical reasons, find people to fill vacancies has become the dominating concern of companies in the US, Europe and of course Japan. It is to be expected that the structural factors described above will contribute to this going forward.
"[...] robotisation, automation, artificial intelligence create enormous value for some [...] and have benefits for society at large: lower prices implying increased purchasing power, productivity gains, new job opportunities, investment possibilities, an increase in the tax base [...]"
So perhaps there is less reason for concern in the aggregate about the capacity of an economy to cope with the labour market impact of automation and the focus should shift to the micro level. All this supposes however that the education system delivers people with the right degrees (who identifies and flags future needs?), that skills can be upgraded as need be, that people can make profound career changes and get the necessary training. This also raises the question about who finances this adjustment. In addition to this allocation problem (dynamic skills matching) there is also a distribution problem with the necessity to include those who cannot be easily redeployed. Vision will be required but also communication skills so as to avoid that the focus on the supposed threat of technological change would lead to an inward-looking, defensive, mercantilist approach which in the longer run would become self-defeating.

[1] Automation in everyday life, Pew Research Center, 4 October 2017
[2] Technology and the American Economy, Volume I, 1966, National Commission on Technology, Automation and Economic Progress, Washington, DC
Group Chief Economist of BNP Paribas
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