Technological change and the march of the machines?
In 1930, the famous British economist John Keynes wrote an essay called “Economic Possibilities for Our Grandchildren.” In the essay, he made the now-famous assertion that his grandchildren’s generation (meaning people in the workforce today) would only work 15 hours a week, and living standards would be 4 to 8 times higher. People would take far more leisure time as their material needs were satisfied.
Whilst it is true that by 2030 western economies are set to be on average 8 x wealthier, however working hours (despite significant reductions since the 1930’s) look set to remain significantly above those predicted by Keynes.
In short greater wealth has not been accompanied by the productivity gains required to reduce working hours to the extent Keynes predicted.
The reasons for the sluggish productivity growth have varied over time. Economists from the Bank of England such as Andy Haldane suggest that the sluggish productivity growth in recent years stems from a decline in the diffusion of new ideas within the economy as a whole and within sectors.
However a big question now being asked is whether this sluggish productivity growth could be set to change. Are we now reaching a tipping point, where the gains from technological change will lead to a step change in productivity, and could this lead to Keynes predictions coming to fruition? Some argue that the change is already underway and the pace is set to quicken significantly.
Artificial intelligence; the internet of things; driverless cars; 3D printing, drones, are all examples of the technological change and disruptive technologies which have the potential to transform much of our economy, and crucially reduce the requirement for labour.
A report by McKinsey (and there are many other reports with similar findings) suggests technologies available today could automate 45% of the activities people are paid to perform, and that about 60% of all occupations could see up to a third of their constituent activities automated.
If these predictions are borne out by reality (which is a big if at the moment) it will undoubtedly present a huge opportunity. Technological change could accelerate the pace of economic growth, with a significant reduction in labour required, thus opening the door to the possibility of increased leisure time.
However, there will be a number of significant challenges to this. One challenge could be ensuring that businesses are able to access the funding required to invest in the technology.
However perhaps the most significant change from the reduction in working hours will be the need to significantly change our current social, political and economic structures.
Firstly to facilitate a change in our mindset around work and its role in our lives, and also to ensure the gains of the increased prosperity are shared across society.
The latter is perhaps the most important because, in the absence of any intervention, the majority of the gains of technological change will accrue to the owners of the technology i.e. the shareholders of the businesses, who will receive the dividends from the profits generated by the machines/technology. The share of wages in national income will fall, and dividends/returns to the holders of capital will increase.
Economic growth and wealth will therefore, increase however wealth disparities (already unacceptably wide for many economic commentators) will increase.
Therefore a key challenge will be how to ensure the gains of greater wealth are distributed across society. Universal basic income, providing households with a minimum stake in the stock markets are two of the potential solutions being cited.
However, the debate is very much in its infancy and more debate and new ideas are needed. Unfortunately with Brexit set to dominate the political debate for some months or even years to come there is a risk that this debate does not happen. This would be unfortunate because for many the changes created by technological change are likely to have a greater impact on their working lives than changes following Brexit.