The Impact of Technological Innovation on Labor: A Contradictory View From Leading Economists
In their new book, “Power and Progress,” renowned economists Daron Acemoglu and Simon Johnson challenge the conventional wisdom that technological development always benefits the overall productivity of the economy. Drawing on a millennium-long perspective, they argue that historical patterns have often been different from what economic theory suggests. However, they do identify two exceptions to this trend: the latter half of the 19th century and the initial decades after World War II. What explains these exceptions, and what can we learn about the relationship between technology and labor?
Technological Development Must Evolve in a Labor-Friendly Direction
The key to productivity-driven prosperity lies in ensuring that technological development creates new tasks, rather than replacing employees with machines. When technology focuses on labor-saving automation and innovation that increases productivity and creates new jobs, society experiences higher wages, improved working conditions, and overall economic growth. However, for this to occur, political measures must be in place to strengthen the bargaining power of workers and compel capital to share the surplus created by productivity growth.
Historical Examples: The Industrial Revolution and Post-WWII Technological Development
The industrial revolution in England offers a compelling example of how labor-friendly technological development can lead to increased prosperity. It took nearly a century for technology and policy changes to deliver economic benefits to the majority of workers. This shift occurred when technology shifted its focus to creating new tasks and innovations that increased productivity, rather than solely aiming for labor-saving automation. At the same time, trade unions gained legitimacy and collective bargaining allowed workers to strengthen their positions against business owners. These combined factors led to the materialization of the long-held expectations of increased prosperity.
Similarly, the initial decades after World War II saw technological development driving industrial production. This led to increased productivity and the creation of new jobs throughout the economy. In many countries, including stronger trade union influence, collective wage bargaining, and reforms that favored the position of workers in the labor market, fostered a labor-friendly direction in technological development.
The Shift in the 1980s: Favoring Capital Over Workers
The deviation from the historical pattern since the 1980s can be attributed to technological and global development primarily favoring capital owners over workers. An ideological shift, inspired by economists like Milton Friedman and Friedrich von Hayek, reinforced the focus on maximizing profits and share prices, effectively marginalizing trade unions. The result has been weaker productivity growth, stagnant real wages, soaring income inequality, and a declining wage share in many western countries. The recent advancements in artificial intelligence have further exacerbated these issues, with intelligent machines designed to replace human employees and lacking a sufficient number of new tasks to offset the displacement of the workforce.
Reversing the Trend: Policy Reforms for a Labor-Friendly Technological Future
To reverse the current trend of inadequate job opportunities and limited productivity growth, several policy reforms are needed. Innovation policies should prioritize plurality and move away from a sole focus on automation and surveillance. Large corporations, such as Google, Facebook, and Amazon, should be broken up into smaller units to foster competition. Higher education and research should be independent of business interests, and transparency should be increased while tightening rules concerning lobbying. Additionally, tax systems should be rebalanced to favor employing workers over accruing capital and incentivize investments in lifelong learning.
Swedish Example: Looking Beyond Strengthening Bargaining Power
In Sweden, exploding income inequality is not primarily due to weakened bargaining positions for workers but rather a result of macroeconomic policies. While Sweden has maintained centrally negotiated wage marks, unlike the United States and the United Kingdom, the country has underinvested in productive capacity in various sectors. To move forward, Sweden must move away from fatalistic references to globalization and the Friedman doctrine. Instead, the focus should be on formulating an alternative vision and designing concrete policies that prioritize productive capacity, small income differences, equal life chances, and healthy market competition. By building on its strong trade-union movement, Sweden can lead the way in shaping a labor-friendly approach to technological development.
By considering the historical lessons, recognizing the imbalances in current technological advancements, and implementing policy reforms, societies can shape a future where technology supports labor rather than supplanting it. The choice is in our hands—to create a future where workers’ contributions to production are complemented and prosperity is shared more equitably.
Analyst comment
This news can be evaluated as a negative news because it highlights the negative impact of technological development on labor, such as weaker productivity growth, stagnant real wages, and soaring income inequality. As an analyst, it can be predicted that without policy reforms to favor labor-friendly technological development, the market will continue to experience limited job opportunities, declining wage share, and inadequate productivity growth.
