This is the first article of a three-article series about the so-called Third Industrial Revolution.
Nouriel Roubini has recently shared his views about “whether demand for labor will continue to grow as technology marches forward” in Where Will All the Workers Go?, an op-ed column for Project Syndacate.
Contrary to the (once?) common economic belief that robotics will affect only manufacturing employment, Roubini correctly points out that even highly-skilled service jobs are at risk of technological disruption.
[…] a patient in New York may have his MRI sent digitally to, say, Bangalore, where a highly skilled radiologist reads it for one-quarter of what a New York-based radiologist would cost. But how long will it be before a computer software can read those images faster, better, and cheaper than the radiologist in Bangalore can?
[…] will we still need so many teachers in the decades to come if the cream of the profession can produce increasingly sophisticated online courses that millions of students can take? If not, how will all of those former teachers earn a living?
[…] by transforming how services are provided to the public, the e-government trend can offset the employment losses with productivity gains.
However, he runs into a common economic pitfall when he defines recent technological advances as “capital-intensive” (thus favoring those who already have financial resources) and “skill-intensive” (thus favoring those who already have a high level of technical proficiency).
Actually, recent technological advances are capital-saving: a few decades ago, not even the richest man in the world could command the computational power and the mass storage that, today, I can command with a few hundred bucks.
Since practically every kind of information can be digitally encoded, computationally manipulated and electronically transmitted, from an economic point of view we are not just talking about bits, we are talking about less physical capital, real stuff: paper, trucks, buildings, machinery, gasoline, etc.
This fact also explains why an incredible and historically unprecedented amount of research and development has been undertaken by small companies (the now-mythical startup garages) and not by giant incumbent firms with huge financial endowments.
Furthermore, it may sound counterintuitive but technological progress has never been skill-intensive: technological progress is all about embodying human knowledge into capital goods.
A very quick and simple example should do the work: only a fool could label earlier generations of low-level computer programmers as less skilled than current generations of high-level computer programmers.
If current generations of high-level computer programmers are able to deal with very complex and relevant problems is not because they are more skilled than earlier generations of low-level computer programmers, exactly the opposite: the superior knowledge of earlier generations of low-level computer programmers is now embodied into very complex, but not-so-expensive, capital goods, so that it is easily available to less skilled current generations of high-level computer programmers.
Current generations of high-level computer programmers are less skilled and need less capital (go back to the sixties and try to buy a mainframe with your monthly salary…) than earlier generations of low-level computer programmers, but they are also much more productive because they can build upon the superior knowledge embodied into more recent capital goods.
If you think thoroughly about the history of professions and sciences, you will notice that this is a general and well-known truth: we are dwarfs on the shoulders of giants.
In the short run, it is not a historical novelty that technological progress is deflationary and employment-depressing: its contribution to economic development has never been full employment, it has always been fostering entrepreneurial activity (new goods, new production methods, new markets, new sources of supply, new organization forms) that in turn drives the rise in income and the wealth and political power redistribution into different hands.
The fact that winner-takes-all effects are at work is also quite encouraging, it implies that entrepreneurial profits are still among us: as long as the law of category (“If you can’t be first in a category, set up a new category that you can be first in.”) still holds, there will be loads of different competitions and winners.
IMHO, the real question that we should ask ourselves is: why now? Why did it take the Internet for economists to notice and discuss the “Third Industrial Revolution”? I will stick to Roubini’s own examples:
- It did not take the Internet for telemedicine to be competitive with more labor-intensive medical practices. Why do developed countries lag behind developing countries in this field?
- It did not take the Internet for distance learning to be competitive with more labor-intensive educational practices. Actually, it is not “the cream of the profession” that is producing “increasingly sophisticated online courses that millions of students can take”, it took an ex-hedge fund manager. Why is it so?
- It did not take the Internet for governments to achieve greater efficiency and transparency through ICT (see non-internet e-government). So why all the buzz now?
Roubini concludes that, eventually, it might “become necessary to provide permanent income support to those whose jobs are displaced by software and machines.”
In the next article of the series, I will try to suggest that, in developed countries, people have already been provided permanent income support, in a very Freudian and Calvinist-guilt-free way but still…