Sunday, October 11, 2015

Evaluating the Future—and Managing It

We are frequently told that information technology has been and will be leading us to a grand and glorious future where innovative applications will provide us with wondrous new things.  Yet at the same time, many of us who have been around for a long time have observed some rather disconcerting trends.  Jobs that used to last for decades now last years—provided one is lucky enough to have an actual job and not a contingent assignment.  A college education was once a passport to a position with job security and the expectation of rising wages.  Now a college education is often a passport to a position that was once performed by high school graduates, and the financial reward is derived not from rising wages but from the fact that high school graduates’ prospects are falling faster than those of college degree holders.  There is a narrowing educational door through which fewer and fewer highly skilled people are admitted.  Wealth is being accumulated ever more quickly, but concentrated in fewer people.  We seem to be moving in a direction where wealth determines political power.  How does society benefit in any way from these developments?

Are these the concerns of one who is too resistant to change?  Or is there in fact something deceptive and harmful in what technology is doing to society?

Martin Wolf provided some interesting insights into what has been transpiring in an article in Foreign Affairs: Same as It Ever Was.  He signals where he is headed by providing this subtitle:

“Why the Techno-optimists Are Wrong”

According to classical economic reasoning, increases in wages will naturally follow from increases in productivity of workers as the bounty from this increase is shared between labor and capital.  Therefore, if one wishes to claim a new “industrial revolution” based on information technology, one should be able to indicate gains in productivity as evidence.  Wolf points out that during the supposed “revolution” the rate of gain in productivity has actually been falling.

“In reality, the pace of economic and social transformation has slowed in recent decades, not accelerated. This is most clearly shown in the rate of growth of output per worker. The economist Robert Gordon, doyen of the skeptics, has noted that the average growth of U.S. output per worker was 2.3 percent a year between 1891 and 1972. Thereafter, it only matched that rate briefly, between 1996 and 2004. It was just 1.4 percent a year between 1972 and 1996 and 1.3 percent between 2004 and 2012.”

“On the basis of these data, the age of rapid productivity growth in the world’s frontier economy is firmly in the past, with only a brief upward blip when the Internet, e-mail, and e-commerce made their initial impact.”

Perhaps one way to differentiate between the second industrial revolution of the past century and the presumed current one is that the past provided access to things that were desperately needed, while the current one must first create a desire for the products it provides.

“Just consider the shift from a world without telephones to one with them, or from a world of oil lamps to one with electric light. Next to that, who cares about Facebook or the iPad? Indeed, who really cares about the Internet when one considers clean water and flushing toilets?”

If one wishes to consider what a real technological revolution is, consider this statement that Wolf provides from the economist Robert Gordon:

“Electric light and a workable internal combustion engine were invented in a three-month period in late 1879. The number of municipal waterworks providing fresh running water to urban homes multiplied tenfold between 1870 and 1900. The telephone, phonograph, and motion pictures were all invented in the 1880s.”

Those who promote a “third industrial revolution” claim that economic statistics do not capture the added value provided by recent innovations.  A smartphone, for example, is worth much more than its sale value.  Wolf will have none of this.

“These points are correct. But they are nothing new: all of this has repeatedly been true since the nineteenth century. Indeed, past innovations generated vastly greater unmeasured value than the relatively trivial innovations of today.”

A true revolution must generate enormous social and economic benefits to the world.

“The motor vehicle eliminated vast quantities of manure from urban streets. The refrigerator prevented food from becoming contaminated. Clean running water and vaccines delivered drastic declines in child mortality rates. The introduction of running water, gas and electric cookers, vacuums, and washing machines helped liberate women from domestic labor. The telephone removed obstacles to speedy contact with the police, fire brigades, and ambulance services. The discovery of electric light eliminated forced idleness. Central heating and air conditioning ended discomfort. The introduction of the railroad, the steam ship, the motor car, and the airplane annihilated distance.”

Wolf grants that computers, the internet, and related goods are very important, but he fails to find anything that generated beneficial changes comparable to those produced in the last century.  In fact, one can make the argument that the information age has been at least partially responsible for the range of ills discussed at the beginning of this article.

“Yet perhaps paradoxically, recent technological progress might still have had some important effects on the economy, and particularly the distribution of income, even if its impact on the size of the economy and overall standards of living has been relatively modest. The information age coincided with—and must, to some extent, have caused—adverse economic trends: the stagnation of median real incomes, rising inequality of labor income and of the distribution of income between labor and capital, and growing long-term unemployment.”

The information age has also contributed to the ease with which jobs and factories could be eliminated from local economies and shipped elsewhere.  The net result for a country like the United States is that products have become cheaper, but wages have been driven lower while the basics of education, housing, and healthcare have become much more expensive.

The basic premise of the information age is that machines and computer-driven logic can perform many tasks better than humans.  Therefore, working humans will be replaced as they become obsolete.  Where this process ends, no one knows.   There are still those economists who will claim that new technologies always create more jobs than they destroy.  This belief seems to be based on the observation that the last industrial revolution drove people from farms and into our large urban areas—and provided them with jobs and prosperity (eventually).  But that has already happened.  It can’t happen again, so where are these new jobs going to come from?

The hallmark of the information age is that successful companies can be produced quickly with little need for physical capital and even less need for employees.  A handful of people can create something that generates enormous revenues (think Facebook).  Great wealth can be created without the need to share it with anything so old fashioned as employees.  Where is the modern counterpart to the auto industry that generated a world-wide network of suppliers of parts and services and employed millions?

Wolf provides an interesting discussion of where we might be heading.  His main point is that technology does not have a life of its own.  It does not have the right to wander wherever it wishes and create or destroy whatever it chooses.  Not all activity is progress, and not all efficiencies and innovations are beneficial.

“….new technologies bring good and bad. We must believe we can shape the good and manage the bad.”

Innovation emerging from the current digital era has enormous potential to allow people to live better lives.

“….we will have to reconsider leisure. For a long time, the wealthiest lived a life of leisure at the expense of the toiling masses. The rise of intelligent machines would make it possible for many more people to live such lives without exploiting others. Today’s triumphant puritanism finds such idleness abhorrent. Well then, let people enjoy themselves busily. What else is the true goal of the vast increases in prosperity we have created?

However, a more expected result is less encouraging.

“It is also possible that the ultimate result might be a tiny minority of huge winners and a vast number of losers. But such an outcome would be a choice, not a destiny. Techno-feudalism is unnecessary. Above all, technology itself does not dictate the outcomes. Economic and political institutions do. If the ones we have do not give the results we want, we will need to change them.”

We have a choice before us.  We can use our ability to create wealth to produce a society where leisure takes up an ever greater fraction of our time.  We would of course have to re-educate ourselves in order to be able to use that time to provide ourselves some satisfaction.

Or, we could conclude that it would be better to create a society where there was a true full-employment program.  As we watch our shabby infrastructure become ever shabbier, it is not difficult to envisage tasks that need to be done.  Jobs could be created in the arts, sciences, and various service areas that would be beneficial to society.

Both options will produce better results than would occur if we do nothing.  What is necessary is a vast redistribution in wealth.  Society can make that happen.  It would be democracy in action.  Wolf provides us with a reminder of what the rights of society include.

“Property rights are a social creation. The idea that a small minority should overwhelmingly benefit from new technologies should be reconsidered. It would be possible, for example, for the state to obtain an automatic share of the income from the….property it protects.”

Martin Wolf is Chief Economics Commentator for the Financial Times.

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