People in tech used to be able to tell themselves that they were making the world a better place. They still tell themselves that, of course, but the truth is somewhat less certain as is their conviction that such is true.
What has happened, as the following article explains, is not entirely due to technology, but to the web of services, tax breaks and public or private policies that have grown up around tech as it has generated more financial benefits for those with access to them.
Which is to say, a rather dramatically limited subset of the total population.
Essentially, the return on capital investments has begun to significantly exceed that on the hiring of mere humans. This is not simply the result of wondrous economic and technological innovations working in concert, but of policies that consciously deliver those excess returns to capital rather than labor.
The question that now confronts virtually every society impacted by this development - comprising the entire world - is whether this system of laws, incentives, regulations and structural benefits is sustainable. Perhaps even more importantly is whether it should be. Those who counsel against acting hastily and warn of the dangers in meddling, fail or refuse to acknowledge that this state of affairs is, itself, the direct result of previous meddling. The issues now are whether to act and how to do so. JL
Eduardo Porter reports in the New York Times:
As the cost of capital investments has fallen
relative to the cost of labor, businesses have rushed to replace workers with
technology.
It’s hard to overstate the excitement of tech
people about what is on the verge of happening to the practice of medicine.
Eric Horvitz, co-director of Microsoft
Research’s main lab in Redmond, Wash., told me about a system that could predict
a pregnant woman’s odds of suffering postpartum depression with uncanny
accuracy by looking at her posts on Twitter, measuring signs like how many times
she used words like “I” and “me.”
Ramesh Rao of the California Institute for
Telecommunications and Information Technology at the University of California,
San Diego, described how doctors using video and audio to remotely assess
victims of stroke made the correct call 98
percent of the time.
This is just the beginning. “The real
innovative things have yet to be activated,” Mr. Rao said. “Whatever happens
will be disruptive.”
That’s not the half of it.
A few years ago, this kind of technological
development would be treated like unadulterated good news: an opportunity to
improve the nation’s health and standard of living while perhaps even reducing
health care costs and achieving a leap in productivity that would cement the
United States’ pre-eminent position on the frontier of technology.
Working Pays Less
The share of income taken by workers has been
shrinking around the world, as labor faces more competition and new labor-saving
technologies.
Change in labor share of income
Percentage point change per 10
years, since 1975*
–
15%
–
10
–
5
0
+
5
LARGEST
ECONOMIES
China
–
3.6
%
Germany
–
2.6
Italy
–
2.3
France
–
2.2
Canada
–
1.7
Japan
–
1.4
United
States
–
1.3
Britain
+
0.6
Estimated change in
labor share of income by industry
Percentage point change per
10 years, since 1975**
–4%
–2
0
+2
Mining
Transport
Manufacturing
Utilities
Wholesale and retail
Public services
Construction
Hotels
Agriculture
Financial and business
services
But a growing pessimism has crept into our
understanding of the impact of such innovations. It’s an old fear, widely held
since the time of Ned Ludd, who destroyed two mechanical knitting machines in
19th-century England and introduced the Luddite movement, humankind’s first
organized protest against technological change.
In its current incarnation, though, the fear
is actually very new. It strikes against bedrock propositions developed over
more than half a century of economic scholarship. It can be articulated
succinctly: What if technology has become a substitute for labor, rather than
its complement?
As J. Bradford Delong, a professor of
economics at the University of California, Berkeley, wrote
recently, throughout most of human history every new machine that took the
job once performed by a person’s hands and muscles increased the demand for
complementary human skills — like those performed by eyes, ears or brains.
But, Mr. Delong pointed out, no law of nature
ensures this will always be the case. Some jobs — nannies, say, or waiting
tables — may always require lots of people. But as information technology creeps
into occupations that have historically relied mostly on brainpower, it
threatens to leave many fewer good jobs for people to do.
These sorts of ideas still strike most
mainstream economists as heretical, an uncalled-for departure from a canon that
states that capital — from land and lathes to computers and cyclotrons — is
complementary to labor.
It was a canon written by economists like
Robert Solow, who won
the Nobel in economic science for his work on how labor, capital and
technological progress contribute to economic growth. He proposed more than 50
years ago that the share of an economy’s rewards accruing to labor and capital
would be roughly stable over the long term.
But evidence is emerging that this long-held
tenet is no longer valid. In the United States, the share of national income
that goes to workers — in wages and benefits — has been falling for almost half
a century.
Today it’s at its lowest level since the 1950s
while the returns to capital have soared. Corporate profits take the largest
share of national income since the government started measuring the statistic in
the 1920s.
In a recent interview, Professor Solow
stressed that his proposition of relatively stable labor and capital shares
assumed “an economy in a steady state with no systematic structural changes
occurring.”
That assumption doesn’t seem to hold anymore.
“Over the last few decades something structural might be happening to the
economy that seems to want to increase the capital share,” he said.
Professor Solow suggests that technology is
probably not the only cause of labor’s declining share. He cites “everyday
reasons,” including the erosion of the minimum wage, the decimation of trade
unions and anti-labor legislation.
But technology clearly plays a role. “We will
know better in 10 or 15 years,” Professor Solow said. “But if I had to interpret
the data now, I would guess that as the economy becomes more capital intensive,
capital’s share of income will rise.”
As the cost of capital investments has fallen
relative to the cost of labor, businesses have rushed to replace workers with
technology.
“From the mid-1970s onwards, there is evidence
that capital and labor are more substitutable” than what standard economic
models would suggest, Professor Neiman told me. “This is happening all over the
place. It is a major global trend.”
The implication is potentially dire: The vast
disparities in the distribution of income that have been widening inexorably
since the 1980s will widen further.
This is hardly a consensus reading of the
record. “It is hard to make a very definite prediction about how the
capital-income share will evolve over the next 10 years,” Daron Acemoglu, a
colleague of Mr. Solow’s at M.I.T., told me. “Future technology could maybe
increase the contribution of labor.”
Tyler Cowen, a professor of economics at
George Mason University, argues that the very definitions of labor and capital
are arbitrary. Instead, he looks around the world to find the relatively scarce
factors of production and finds two: natural resources, which are dwindling, and
good ideas, which can reach larger markets than ever before.
If you possess one of those, then you will
reap most of the rewards of growth. If you don’t, you will not.
Conventional wisdom in economics has long held
that technological change affects income inequality by increasing the rewards to
skill — through a dynamic called “skill-biased technical change.” Losers are
workers whose job can be replaced by machines (textile workers, for example).
Those whose skills are enhanced by machines (think Wall Street traders using
ultrafast computers) win.
It is becoming increasingly apparent, however,
that this is not the whole story and that the skills-heavy narrative of
inequality is not as straightforward as economists once believed. The persistent
decline in the labor share of income suggests another dynamic. Call it
“capital-biased technical change” — which encourages replacing decently paid
workers with a machine, regardless of their skill.
For instance, research by the Canadian economists Paul
Beaudry, David Green and Benjamin Sand finds that demand for highly skilled
workers in the United States peaked around 2000 and then fell, even as their
supply continued to grow. This pushed the highly educated down the ladder of
skills in search of jobs, pushing less-educated workers further down.
This dynamic opens a new avenue for inequality
to widen: the rise in the rewards to inherited wealth, a
topic explored in depth
in Thomas Piketty’s expansive new book, “Capital in the Twenty-First
Century.”
So what about the long-term prospect of good
jobs in medicine? Policy makers hold fast to the hope that a growing health care
industry will support the American middle-class worker of the future. But
technology could easily disrupt this promise too.
“Health care jobs may be safe now,” said
Gordon Hanson, a professor of economics at the University of California, San
Diego, “but our sense of what’s safe has been consistently belied by the impact
of our technological progress.”
Or as Mr. Rao put it, diagnosing depression
from Twitter posts “doesn’t require any medical training.”
The only safe route into the future seems to
be to already have a lot of money.
As a Partner and Co-Founder of Predictiv and PredictivAsia, Jon specializes in management performance and organizational effectiveness for both domestic and international clients. He is an editor and author whose works include Invisible Advantage: How Intangilbles are Driving Business Performance. Learn more...
Change in labor share of incomePercentage point change per 10years, since 1975*–15%–10–50+5LARGESTECONOMIESChina–3.6%Germany–2.6Italy–2.3France–2.2Canada–1.7Japan–1.4UnitedStates–1.3Britain+0.6Estimated change inlabor share of income by industryPercentage point change per10 years, since 1975**–4%–20+2MiningTransportManufacturingUtilitiesWholesale and retailPublic servicesConstructionHotelsAgricultureFinancial and businessservicesBut a growing pessimism has crept into our understanding of the impact of such innovations. It’s an old fear, widely held since the time of Ned Ludd, who destroyed two mechanical knitting machines in 19th-century England and introduced the Luddite movement, humankind’s first organized protest against technological change.In its current incarnation, though, the fear is actually very new. It strikes against bedrock propositions developed over more than half a century of economic scholarship. It can be articulated succinctly: What if technology has become a substitute for labor, rather than its complement?As J. Bradford Delong, a professor of economics at the University of California, Berkeley, wrote recently, throughout most of human history every new machine that took the job once performed by a person’s hands and muscles increased the demand for complementary human skills — like those performed by eyes, ears or brains.But, Mr. Delong pointed out, no law of nature ensures this will always be the case. Some jobs — nannies, say, or waiting tables — may always require lots of people. But as information technology creeps into occupations that have historically relied mostly on brainpower, it threatens to leave many fewer good jobs for people to do.These sorts of ideas still strike most mainstream economists as heretical, an uncalled-for departure from a canon that states that capital — from land and lathes to computers and cyclotrons — is complementary to labor.It was a canon written by economists like Robert Solow, who won the Nobel in economic science for his work on how labor, capital and technological progress contribute to economic growth. He proposed more than 50 years ago that the share of an economy’s rewards accruing to labor and capital would be roughly stable over the long term.But evidence is emerging that this long-held tenet is no longer valid. In the United States, the share of national income that goes to workers — in wages and benefits — has been falling for almost half a century.Today it’s at its lowest level since the 1950s while the returns to capital have soared. Corporate profits take the largest share of national income since the government started measuring the statistic in the 1920s.In a recent interview, Professor Solow stressed that his proposition of relatively stable labor and capital shares assumed “an economy in a steady state with no systematic structural changes occurring.”That assumption doesn’t seem to hold anymore. “Over the last few decades something structural might be happening to the economy that seems to want to increase the capital share,” he said.Professor Solow suggests that technology is probably not the only cause of labor’s declining share. He cites “everyday reasons,” including the erosion of the minimum wage, the decimation of trade unions and anti-labor legislation.But technology clearly plays a role. “We will know better in 10 or 15 years,” Professor Solow said. “But if I had to interpret the data now, I would guess that as the economy becomes more capital intensive, capital’s share of income will rise.”This shift is happening globally. In a recent article in the Quarterly Journal of Economics, Loukas Karabarbounis and Brent Neiman from the University of Chicago’s Booth School of Business found that the share of income going to workers has been declining around the world.As the cost of capital investments has fallen relative to the cost of labor, businesses have rushed to replace workers with technology.“From the mid-1970s onwards, there is evidence that capital and labor are more substitutable” than what standard economic models would suggest, Professor Neiman told me. “This is happening all over the place. It is a major global trend.”The implication is potentially dire: The vast disparities in the distribution of income that have been widening inexorably since the 1980s will widen further.This is hardly a consensus reading of the record. “It is hard to make a very definite prediction about how the capital-income share will evolve over the next 10 years,” Daron Acemoglu, a colleague of Mr. Solow’s at M.I.T., told me. “Future technology could maybe increase the contribution of labor.”Tyler Cowen, a professor of economics at George Mason University, argues that the very definitions of labor and capital are arbitrary. Instead, he looks around the world to find the relatively scarce factors of production and finds two: natural resources, which are dwindling, and good ideas, which can reach larger markets than ever before.If you possess one of those, then you will reap most of the rewards of growth. If you don’t, you will not.Conventional wisdom in economics has long held that technological change affects income inequality by increasing the rewards to skill — through a dynamic called “skill-biased technical change.” Losers are workers whose job can be replaced by machines (textile workers, for example). Those whose skills are enhanced by machines (think Wall Street traders using ultrafast computers) win.It is becoming increasingly apparent, however, that this is not the whole story and that the skills-heavy narrative of inequality is not as straightforward as economists once believed. The persistent decline in the labor share of income suggests another dynamic. Call it “capital-biased technical change” — which encourages replacing decently paid workers with a machine, regardless of their skill.For instance, r esearch by the Canadian economists Paul Beaudry, David Green and Benjamin Sand finds that demand for highly skilled workers in the United States peaked around 2000 and then fell, even as their supply continued to grow. This pushed the highly educated down the ladder of skills in search of jobs, pushing less-educated workers further down.This dynamic opens a new avenue for inequality to widen: the rise in the rewards to inherited wealth, a topic explored in depth in Thomas Piketty’s expansive new book, “Capital in the Twenty-First Century.”So what about the long-term prospect of good jobs in medicine? Policy makers hold fast to the hope that a growing health care industry will support the American middle-class worker of the future. But technology could easily disrupt this promise too.“Health care jobs may be safe now,” said Gordon Hanson, a professor of economics at the University of California, San Diego, “but our sense of what’s safe has been consistently belied by the impact of our technological progress.”Or as Mr. Rao put it, diagnosing depression from Twitter posts “doesn’t require any medical training.”The only safe route into the future seems to be to already have a lot of money.
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