Is job­less growth in­evitable?

Financial Mirror (Cyprus) - - FRONT PAGE -

Ever since the industrial revo­lu­tion, hu­mans have been am­biva­lent about tech­no­log­i­cal progress. While new tech­nol­ogy has been a ma­jor source of lib­er­a­tion, progress, and pros­per­ity, it has also fu­eled plenty of agony – not least ow­ing to the fear that it will ren­der la­bor re­dun­dant.

So far, ex­pe­ri­ence has seemed to dis­credit this fear. In­deed, by boost­ing pro­duc­tiv­ity and underpinning the emer­gence of new in­dus­tries, tech­no­log­i­cal progress has his­tor­i­cally fu­eled eco­nomic growth and net job cre­ation. New in­no­va­tions ac­cel­er­ated – rather than dis­rupted – this pos­i­tive cy­cle.

But some are claim­ing that the cy­cle is now bro­ken, es­pe­cially in tech­no­log­i­cally savvy coun­tries like the United States. In­deed, ma­chines are be­com­ing smarter, with in­no­va­tions like ad­vanced ro­bot­ics, 3D print­ing, and big data an­a­lyt­ics en­abling com­pa­nies to save money by elim­i­nat­ing even highly skilled work­ers. As a re­sult of this “pro­duc­tiv­ity para­dox” (some­times called the “great de­cou­pling”), job­less growth is here to stay. We can no longer take hu­man pros­per­ity for granted, how­ever rosy the ag­gre­gate in­di­ca­tors for prof­itabil­ity and GDP growth may be.

But are we re­ally in the throes of a Franken­stein’s dilemma, in which our own cre­ations come back to haunt us? Or can we beat the pro­duc­tiv­ity para­dox by har­ness­ing the power of ma­chines to sup­port devel­op­ment in ways that ben­e­fit more than the bot­tom line?

There is good rea­son to be op­ti­mistic. Many coun­tries – even tech­no­log­i­cally savvy ones – can still ben­e­fit from the self-re­in­forc­ing cy­cle of tech­no­log­i­cal ad­vance­ment, ris­ing pro­duc­tiv­ity, and em­ploy­ment growth. Lux­em­bourg, Nor­way, and the Nether­lands – three in­no­va­tive and cap­i­tal­in­ten­sive economies that reg­u­larly ap­pear in the up­per quar­tile of pro­duc­tiv­ity per hour and em­ploy­ment, ac­cord­ing to OECD data from 2001-2013 – are prime ex­am­ples.

Cyn­ics will sus­pect that Lux­em­bourg and Nor­way have man­aged to sus­tain this dy­namic only be­cause of their pe­cu­liar eco­nomic struc­tures (a con­cen­tra­tion in fi­nance in the for­mer, and in nat­u­ral re­sources in the lat­ter). So, let’s con­sider the Nether­lands, which stands out as the only coun­try that re­cently has ap­peared in the up­per quar­tile not only in pro­duc­tiv­ity and em­ploy­ment, but also in labor­mar­ket par­tic­i­pa­tion.

The Nether­lands has been a cham­pion of in­no­va­tion, gain­ing a fifth-place rank­ing in the re­cent INSEAD Global In­no­va­tion In­dex. A strik­ing 85% of large Dutch firms re­port in­no­va­tive ac­tiv­i­ties, while more than 50% of all firms are “in­no­va­tion ac­tive.” Dutch firms are also world patent lead­ers; Eind­hoven, the home­town of the elec­tron­ics com­pany Philips, is the world’s most patent-in­ten­sive city.

So what is the Dutch se­cret for en­sur­ing that tech­no­log­i­cal progress benefits all?

The Nether­lands seems to be un­der­go­ing a sort of industrial revo­lu­tion in re­verse, with jobs mov­ing from fac­to­ries to homes. The Dutch labour mar­ket has the high­est con­cen­tra­tion of part-time and free­lance work­ers in Europe, with nearly 50% of all Dutch work­ers, and 62% of young work­ers, en­gaged in part-time em­ploy­ment – a luxury af­forded to them by the coun­try’s rel­a­tively high hourly wages.

Many young Dutch work part-time as school­teach­ers. But a more lu­cra­tive – and com­mon – source of part-time em­ploy­ment in the Nether­lands is the sub­con­tract­ing of “white col­lar” ser­vices. Highly skilled or spe­cial­ized work­ers sell their ser­vices to a wide range of busi­nesses, sup­ple­ment­ing the work of ma­chines with hu­man val­ueadded ac­tiv­ity.

An­other key to the Nether­lands’ suc­cess is en­trepreneur­ship. In 1990-2010, self-em­ploy­ment rates fell across the OECD coun­tries, with busi­ness own­er­ship in the US, for ex­am­ple, hav­ing de­clined rapidly since 2002. In the Nether­lands, how­ever, busi­ness own­er­ship has grown steadily since 1992, reach­ing 12% of the labour force in 2012. Al­most 70% of Dutch busi­ness own­ers were ex­clu­sively self­em­ployed in 2008.

To be sure, rates of busi­ness own­er­ship and selfem­ploy­ment are also high in low-in­come coun­tries like Mex­ico. But the Nether­lands is much wealth­ier, and boasts high lev­els of per-hour pro­duc­tiv­ity, em­ploy­ment, and par­tic­i­pa­tion – largely ow­ing to its flex­i­ble and adap­tive labour mar­ket.

In short, the Nether­lands has restruc­tured its eco­nomic value chain to ac­com­mo­date a new di­vi­sion of labour be­tween hu­mans and ma­chines, em­brac­ing new kinds of eco­nomic ac­tiv­ity – es­pe­cially part-time work and solo en­trepreneur­ship – to bal­ance hu­man needs with tech­no­log­i­cal ad­vances. In do­ing so, it has high­lighted the im­por­tance of “en­ter­pris­ing skills” – in­clud­ing cre­ativ­ity, en­trepreneur­ship, lead­er­ship, self-man­age­ment, and com­mu­ni­ca­tions – in en­abling hu­mans to keep pace with tech­nol­ogy.

Ma­chines may be reach­ing new heights of in­tel­li­gence, but they are no match for hu­man re­source­ful­ness, imag­i­na­tion, and in­ter­ac­tion. This is a les­son that coun­tries would do well to learn from the Dutch.

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