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- Since the industrial revolution technological innovation has widely been seen as a driver of human welfare, raising living standards and improving the quality of life.
- But technological change also provokes anxiety. A recurring theme over the last two hundred years is that technology destroys jobs and renders swathes of the population redundant.
- In the early nineteenth century a group of English textile workers, fearing that labour saving machinery would put them out of work, embarked on a campaign to destroy the new machines. In the 1930s the economist John Maynard Keynes coined the term "technological unemployment" to describe how productivity-enhancing innovation could create periods of unemployment. And in the 1970s, Clive Jenkins, a prominent UK trade union leader, predicted the dawning computer revolution would create mass unemployment and an abundance of leisure.
- The direst predictions of the pessimists have so far proved wrong. Technology has, indeed, wiped out whole categories of jobs, especially in manufacturing. But it has created new jobs and, by raising living standards, has given people more money to spend on goods and services that were once the preserve of the rich. Incomes and employment have soared over the last 200 years. Technology has not created mass unemployment nor reduced the overall number of jobs.
- But today a number of economists and commentators argue that the coming wave of innovation will be different. They warn that exponential growth in computer processing power and storage capacity, coupled with technologies, such as GPS, the internet, robotics and 3D printing, signals a new, disruptive phase of innovation.
- Such technologies threaten to advance so far up the spectrum of human skills that even highly skilled workers will be made redundant. In a recent assessment, two Oxford academics estimated that 47% of US jobs are at risk from computerisation over the next 20 years. Jobs in transportation, logistics and office and administrative support were found to be at high risk of automation. For accountants and auditors the probability of computerisation was estimated at 94%, for personal financial advisers 58%, commercial pilots 55%, historians 44% and economists 43%.
- Technological change has been widely blamed as one of the factors behind the stagnation of real incomes for middle earners in the US over the last 40 years and the falling US employment rate. In the jargon, capital is being substituted for labour. In a recent speech the former US Treasury Secretary, Larry Summers, described the destructive effect of technology on manufacturing jobs, noting that a higher proportion of the US workforce receives disability benefits than does production work in manufacturing.
- One plausible explanation for the shrinking share of US GDP accounted for by wages and salaries is that the benefits of technological change have overwhelmingly accrued to capital rather than labour.
- As the Financial Times journalist, Izabella Kaminska, argues, "robot and technology power is reducing the natural employment rate. But rather than our subsidising those who have lost jobs to technology, so as to spread that manna wealth...companies are using monopoly power to extort rents on the capital that is creating all that free wealth...the fruits of innovation flow to the owners of the capital and invention, forming a whole new rentier class".
- The US science pioneer and writer, Jaron Lanier, argues that the internet is undermining job security for the middle classes in the same way that earlier periods of innovation destroyed jobs for manual and agricultural workers. The French economist, Thomas Piketty, makes a similar argument when he says that the benefits of innovation are increasingly accruing to a small group of the super-rich.
- Sometimes the tone of this debate strikes us as overly apocalyptic. Historically technology has been good at improving human welfare. As productivity rises, prices tend to fall. The result, as with clothes or communications in the last 30 years, is that consumption rises. Rising disposable incomes are spent on what were previously luxuries, everything from pricey coffees to weekend breaks on the Continent. This creates new industries and new jobs.
- Even in the distant future there are plenty of things that computers will not be able to do. The jobs that survive are likely to require flexibility, creativity and social intelligence. The Oxford economists estimated that the work of more than half of all jobs, including recreational therapists, social workers, choreographers, curators, police officers, mathematicians and doctors, have a very low probability of being computerised.
- Technology is set to deliver huge benefits over the coming years. But, just like previous waves of innovation, it also seems likely to bring disruption and painful change. The great challenge is, in part, political – how to ensure that the benefits of technological progress are widely shared across the population.
MARKETS & NEWS
UK's FTSE 100 ended the week down 0.6%.
Here are some recent news stories that caught our eye as reflecting key economic themes:
KEY THEMES
- The UK's largest retailer, Tesco, is trialling checkouts that use imaging technology to automatically scan products placed on a conveyor belt
- PC maker Hewlett-Packard announced that it is cutting 11,000 to 16,000 jobs, with the PC market continuing to shrink in size and profit margin
- Financial Times (FT) journalist Chris Giles claimed that "Capital in the Twenty-First Century", the bestselling analysis of inequality by economist Thomas Piketty Capital, is fundamentally flawed because of data errors in the book
- The Russian rouble rose to a 4-month high against the dollar, as receding tensions over Ukraine ease concerns that the country will be hit by further sanctions
- German business sentiment reached its lowest level of the year in May, according to survey data
- The FT reports that the euro's share of emerging market bond issuance has jumped to the highest on record, as developing countries seek to take advantage of rising risk appetite from euro investors
- China is to allow 10 of its local governments to sell bonds for the first time, in a major step towards addressing a crisis in local public finances and shadow banking vulnerabilities
- Daily Mail and General Trust said that acquisitions remain its "number one priority", as it prepares for a potential windfall from the initial public offering of property website Zoopla
- Office building in central London has risen to near pre-recession levels, according to Deloitte Real Estate's twice-yearly London Crane Survey
- The price of an average home in England and Wales increased by nearly £10,000 between April and May, the biggest month-on-month cash increase ever recorded by property website Rightmove
- Ford announced that it will launch a UK right-hand-drive version of the Ford Mustang for the 2015 model season
- The US government charged 5 Chinese army officers with hacking into private-sector American companies in a bid for competitive advantage, in the first cyber-espionage case of its kind
- The franchise to run an enlarged Thameslink rail service in London was awarded to Govia, a French and UK joint-venture
- Australia has seen a record number of inbound M&A deals so far this year, according to data from Dealogic
- French railway bossed admitted that 1,300 platforms at stations will have to be altered after hundreds of new passenger trains were ordered despite being too big to fit in many stations
- The FT reports that the price of unpasteurised liquid egg whites in the US has risen 80% in a year due to soaring demand for low-cholesterol products from food retailers – that's all, yolks!
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