Erik Brynjolfsson and Andrew McAfee’s new book The Second Machine Age asserts that innovation is exploding. Only our ability to use these new tools limits our economic possibilities. A counter-argument by the esteemed economist Robert Gordon, in his paper The Demise of U.S. Economic Growth, argues that the most important innovations, like running water and the telephone, have already been invented. According to Gordon, it is not that innovation will end entirely; rather, that future innovations will be less useful than those in the past.
This month, we talked with Rob Atkinson, president of the Information Technology and Innovation Foundation (ITIF), to get his take on the digital revolution controversy, where digital technology is headed, and the implications for workers and the economy going forward.
In part two of our interview, we continue our conversation on the impact of digital technology on jobs, education and the future of work.
Q: In 1987, Robert Solow famously wrote, “You can see the computer age everywhere except in the productivity numbers.” Today, it seems you can see the digital revolution everywhere but in the economic numbers. Where is this new age of prosperity that all the “techno-optimists” are talking about?
Let’s begin with an important premise. Digital technology is an important dimension in our economy, but it is by no means the only driver of economic activity or opportunity. In contrast to the universal and almost magical properties that “techno-optimists” attribute to digital technology, we need to make a critical distinction between the promise of technology and the use of technology.
People are blaming technology for not living up to its promises because of poor economic performance in recent years when it is really its use as manifest in the lack of basic investment in the economy that is limiting growth. Without increased capital investment in equipment and software, innovation and technology have no way to spread throughout the economy. Long-run growth is lower as a consequence.
The slowdown in investment has little to do with technology. Rather it is due in part to an increasing short-termism on the part of U.S. businesses, leading them to invest less for the longer term. As a result, we are investing less in machines and equipment and structures than we did a decade ago.
The slowdown also appears to be caused by a decline in manufacturing. Manufacturing is a very high-investment, high-productivity sector that pays good wages relative to some of the service industries. But manufacturing’s decline is due in large part to international competition, not to digital technology. Indeed, without digital manufacturing equipment and robotics U.S. manufacturing would have become even less internationally competitive.
Advances in digital technology have created important new industries and new jobs. Unfortunately, the decline in manufacturing has offset these gains to a great extent.
Q: Can you give us some examples of the new industries and new jobs that have been created because of digital technology?
The use of technology has led to significant advances in scale and specialization across a variety of industries — retail, health care, finance, insurance and even manufacturing to name a few. Average firm size in services, for example, has increased substantially in the last decade as smaller companies, like local travel agencies and bookstores, have lost market share to digital firms like Expedia and Amazon.
These scale effects really affect all businesses, including manufacturing and construction. Digital technology enables businesses of all sizes to grow in terms of sales and employment and/or purchase and/or integrate outside services into their organization in ways they could never do before.
Q: But isn’t replacing smaller and/or startup firms with larger, more efficient firms a job killer?
Yes, it is true that new firms are an important source of job growth, and job creation from startups may suffer because there are fewer startups. But these changes also result in efficiency gains, which lower prices and provide consumers with spending power they can allocate to other areas, creating jobs there.
This is what Schumpeter called creative destruction. As I write about in a forthcoming ITIF report, creative destruction is a natural part of the organic process of economic evolution. People don’t find this explanation very satisfying because it creates winners and losers, but it is an essential part of the metabolism of a successful economy. And I am not worried that technology will be a limiting factor on job growth.
Q: What about the argument that technology is a job killer beyond the decline in startups? We don’t see a lot jobs being created even if the economy is more efficient.
Digital technologies create new industries and organizational structures. These organizational changes create new jobs both inside and outside the same business. Large growing businesses add jobs internally, but they are also positioned to outsource functions to specialists and/or purchase specialty services. Indeed, the fastest-growing job categories are business and professional services and other professional services in science and technology. Some of these occupations, like IT jobs, are growing 30 to 40 times faster than conventional occupations.
Q: How would you summarize your outlook for innovation and economic growth, both domestically and globally?
I’m somewhere between the techno-optimists and techno-pessimists. Cautiously optimistic, let’s say. Technology and its economic consequences are about solving problems. The easy problems are the ones we’ve already solved. The hard problems are the ones that are left.
But we are devoting more resources and attention to new technological tools to solve these problems. The biotech space is a good example where digital technology and genomic science have enabled us to push forward into new discoveries.
I believe that the world will be a better place 20 years from now than it is today. However, I do think there are some limiting factors that will hinder the pace of growth and keep us below our potential.
What concerns me most are our lack of aspiration and lack of attention to the policies that will help us realize our aspirations. High taxes have reduced investment in R&D and machinery and equipment, including in the life sciences, where we have been losing global share over the last five to 10 years both in terms of patents and output. And we see a growing fear of innovation and technology in America that holds back progress.
We have the capability to develop a world 50 percent better in terms of health, opportunity, human capacity and prosperity. Instead, we are likely to get a world that is only 20 percent better. It is not a crisis of runaway technology but rather a crisis of aspiration and goal-setting that is undermining our rate of progress.
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