LONG AND SHORT OF DIGITAL REVOLUTION
Given the global reach of digital technology, there is a need for policy cooperation similar to that of international sea and air traffic, writes MARTIN MÜHLEISEN
DIGITAL platforms are recasting the relationships between customers, workers and employers as the silicon chip’s reach permeates almost everything we do — from buying groceries online to finding a partner on a dating website.
As computing power improves dramatically, and more and more people around the world participate in the digital economy, we should think carefully about how to devise policies that will allow us to fully exploit the digital revolution’s benefits while minimising job dislocation.
This digital transformation results from what economists who study scientific progress and technical change call a generalpurpose technology — that is, one that has the power to continually transform itself, progressively branching out and boosting productivity across all sectors and industries.
Such transformations are rare. Only three previous technologies earned this distinction: the steam engine, the electricity generator, and the printing press. These changes bring enormous long-term benefits.
The steam engine, originally designed to pump water out of mines, gave rise to railroads and industry through the application of mechanical power. Benefits accrued as farmers and merchants delivered their goods from the interior of a country to the coasts, facilitating trade.
By their very nature, generalpurpose technological revolutions are also highly disruptive. The Luddites of the early 19th century resisted and tried to destroy machines that rendered their weaving skills obsolete, even though the machines ushered in new skills and jobs. Such disruption occurs precisely because the new technology is so flexible and pervasive.
Consequently, many benefits come not simply from adopting the technology, but from adapting to the technology. The advent of electricity generation enabled power to be delivered precisely when and where needed, vastly improving manufacturing efficiency and paving the way for the modern production line. In the same vein, Uber is a taxi company using digital technology to deliver a better service.
An important component of a disruptive technology is that it must first be widely adopted before society adapts to it. Electricity delivery depended on generators. The current technological revolution depends on computers, the technical backbone of the Internet, search engines, and digital platforms.
Because of the lags involved in adapting to new processes, such as replacing traditional printing with online publishing, it takes time before output growth accelerates. In the early stages of such revolutions, more and more resources are devoted to innovation and reorganisation whose benefits are realised only much later.
Perhaps it is no wonder that the digital revolution doesn’t show up in the productivity statistics quite yet — after all, the personal computer emerged only about 40 years ago.
But make no mistake — the digital revolution is well under way. In addition to transforming jobs and skills, it is also overhauling industries such as retailing and publishing and perhaps — in the not-too-distant future — trucking and banking.
Looking forward, we may see even more disruption from breakthroughs in quantum computing, which would facilitate calculations that are beyond the capabilities of traditional computers. While enabling exciting new products, these computers could undo even some new technologies.
Digitalisation will also transform people’s jobs. The jobs of up to one-third of the US workforce, or about 50 million people, could be transformed by 2020, according to a report published last year by the McKinsey Global Institute.
The study also estimates that about half of all paid activities could be automated using existing robotics and artificial and machine learning technologies. For example, computers are learning not just to drive taxis but also to check for signs of cancer, a task currently performed by relatively well-paid radiologists.
While views vary, it is clear that there will be major potential job losses and transformations across all sectors and salary levels, including groups previously considered safe from automation.
But economic disruption and uncertainty can fuel social anxiety about the future, with political consequences. Current fears about job automation parallel John Maynard Keynes’s worries in 1930 about increasing technological unemployment. We know, of course, that humanity eventually adapted to using steam power and electricity, and chances are we will do so again with the digital revolution.
The answer lies not in denial but in devising smart policies that maximise the benefits of the new technology while minimising the inevitable short-term disruptions. The key is to focus on policies that respond to the organisational changes driven by the digital revolution.
Electrification of US industry in the early 20th century benefited from a flexible educational system that gave people entering the labour force the skills needed to switch from farm work as well as training opportunities for existing workers to develop new skills.
In the same way, education and training should give today’s workers the wherewithal to thrive in a new economy in which repetitive cognitive tasks — from driving a truck to analysing a medical scan — are replaced by new skills such as web engineering and protecting cyber security. More generally, future jobs will probably emphasise human empathy and originality: the professionals deemed least likely to become obsolete include nursery school teachers, clergy and artists.
One clear difference between the digital revolution and the steam and electricity revolutions is the speed at which the technology is diffused across countries. While Germany and the United Kingdom followed the US take-up of electricity relatively quickly, the pace of diffusion across the globe was relatively slow.
The revolution will clearly affect economies that are financial hubs, such as Singapore and Hong Kong, differently than, for example, specialised oil producers such as Kuwait, Qatar, and Saudi Arabia. Equally, the response to automated production technologies will reflect possibly different societal views on employment protection.
Where preferences diverge, international cooperation will likely involve swapping experiences of which policies work best. Similar considerations apply to the policy response to rising inequality, which will probably continue to accompany the gradual discovery of the best way to organise firms around the new technology.
The answer lies not in denial but in devising smart policies that maximise the benefits of the new technology while minimising the inevitable shortterm disruptions. The key is to focus on policies that respond to the organisational changes driven by the digital revolution.
Education and competition policy will also need to be adapted. Schools and universities should provide coming generations with the skills they need to work in the emerging economy. But societies also will need to put a premium on retraining workers whose skills have been degraded.
Similarly, the reorganisation of production puts new strains on competition policy to ensure that new techniques do not become the province of a few firms that come first in a winner-take-all lottery.
In a sign that this is what is already happening, Oxfam International recently reported that eight individuals held more assets than the poorest 3.6 billion combined.
Given the global reach of digital technology, and the risk of a race to the bottom, there is a need for policy cooperation similar to that of global financial markets and sea and air traffic.
In the digital arena, such cooperation could include regulating the treatment of personal data, which is hard to oversee in a country-specific way, given the international nature of the Internet, as well as intangible assets, whose amorphous nature and location can complicate the taxation of digital companies.
And supervisory systems geared towards monitoring transactions between financial institutions will have trouble dealing with the growth of peerto-peer payments, including when it comes to preventing the funding of crime.
To be successful, policymakers will need to respond nimbly to changing circumstances, integrate experiences across countries and issues, and tailor advice effectively to countries’ needs.