Thoughts on tech displacement

There’s a new paper out by Joel Mokyr, Chris Vickers, and Nicolas L. Ziebarth on “The History of Technological Anxiety and the Future of Economic Growth: Is This Time Different?” The paper looks at three forms of anxiety over technology:

First, one of the most common concerns is that technological progress will cause widespread substitution of machines for labor, which in turn could lead to technological unemployment and a further increase in inequality in the short run, even if the long-run effects are beneficial. Second, there has been anxiety over the moral implications of technological process for human welfare, broadly defined. In the case of the Industrial Revolution, the worry was about the dehumanizing effects of work, particularly the routinized nature of factory labor.
. . .
A third concern cuts in the opposite direction, suggesting that the epoch of major technological progress is behind us

While the discussion of all three is interesting, I found the comments on the first issue of tech displacement to be the most insightful. Mokyr et al. make a key point about the gains and costs of technological progress:

While the predictions of widespread technological unemployment were, by and large, wrong, we should not trivialize the costs borne by the many who were actually displaced. It is true that, in the long run, wages for laborers increased to reflect dramatically increased productivity. It is also true that, for the Industrial Revolution, by many estimates it took longer than an average working lifetime to do so, and in the long run, we are all dead.

These distributive aspects of the change are at the heart of most of the anxieties.

But the authors make a more important point as to the dynamics of the process:

More importantly, technological progress also took the form of product innovation, and thus created entirely new sectors for the economy (emphasis in original).

Essentially, the dynamic is a race between productivity and demand with job creation trying to offset job displacement. The linkage between the job displacement effects of innovation via productivity increases and the job creation aspects of innovation and productivity works in three ways. The standard way economists explain the dynamic is the classical balance between supply and demand. As David Autor notes in his new paper “Why Are There Still So Many Jobs? The History and Future of Workplace Automation”

Automation does indeed substitute for labor–as it is typically intended to do. However, automation also complements labor, raises output in ways that lead to higher demand for labor, and interacts with adjustments in labor supply.

In other words, if productivity reduces prices (as opposed to increasing either profits or leisure, i.e. less labor needed for same output), economic theory tells us that sales should increase. That demand for greater production will offset the need for fewer workers per unit of output.

The second way linkage is how process innovation both increases productivity and enables product innovation. The definition of a disruptive technology is that it allows you to do things that you couldn’t do before. Case in point is additive manufacturing aka 3D printing (see my 2014 report Additive Manufacturing as a Disruptive Technology). Additive manufacturing allow production of items that could not be made in conventional processes. This leads to product innovation in areas as disparate as medical devices and fashion.

An example from the early days of the Industrial Revolution is hog lard rendering. Steve Gordon points out (in “From Slaughterhouse to Soap-Boiler: Cincinnati’s Meat Packing Industry, Changing Technologies, and the Rise of Mass Production, 1825-1870“), “Not until the 1830s, with improvements in factory technology and the opening of new markets, did animal wastes become commercially profitable.”

As the process of rendering of hog lard became refined, the use of the product for high quality soaps and candles increased, displacing home-made products. But there were spins off products as well. According to Charles Morris (The Dawn of Innovation: The First American Industrial Revolution):

Mastery of the chemistry of lard facilitated the production of pure glycerine for a host of applications. It was important to tanners, a useful solvent, and widely used in the production of pharmaceuticals and food.

Changes in production processes open up new opportunities in product innovation and increased demand beyond the original product.

The third linkage is the non-linkage. Product innovation can occur independently from productivity increases. So far, the history of technological progress since the Industrial Revolution has been one of enough product innovation to create new jobs. It is this third dynamic of the independence of labor-creating product and labor-reducing process innovation which partially ties back to the third anxiety outlined by Mokyr et al. Will we have the new product (goods and services) development to continue to fulfill the promise of new jobs and new types of jobs? If the future of production is “just-in-time and just-for-me”, will this customization be enough to keep the dynamic going of net job creation?

For now, the dynamic seems to be working. As Peter Thiel famously said, “we wanted flying cars instead we got 140 characters.” Frankly I think we are better off with the 140 characters. And if you think there is an airspace problem with drones, image 250 million cars and truck flying around overhead. But the key question is this: which is enough to create jobs? Flying cars built in automated factories does little to increase net employment. If you take “140 characters” has short hand for “apps” in general, then 140 characters wins. Estimates are that the app economy has generated 750,000 jobs as of 2013.

As they say in the financial advice disclaimer however, “past performance is no guarantee of future results”. The balance between job displacement and job creation is not written in stone. Public policy can help maintain the balance. But only if we recognize that a positive economic outcome is not a preordained outcome.

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