Inequality and Work in the Second Machine Age
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SE THE WORKER INSTITUTE NUMBER 4 Journal DECEMBER 2014 Inequality and Work in the Second Machine Age Henning Meyer ABSTRACT Henning Meyer is a Research Associate at the Public Policy Group The digital revolution associated with the Second Machine Age of the London School of Economics is likely to create major public policy challenges. Inequality in and Political Science, Director of the consultancy New Global Strategy particular, already back at record levels, will be further increased Ltd, and Editor of Social Europe by technological progress and unemployment is likely to rise Journal. Previously he was Head of the at least in the transitional period as digital agents become European Programme at the Global Policy Institute London and Visiting more and more capable. Against this backdrop, policy-makers Fellow at the School of Industrial and should think about measures to reduce inequality, incentives to Labor Relations at Cornell University. re-allocate the remaining work and ways to safeguard meaning- ful employment with a public job guarantee. 2 THE WORKER INSTITUTE THE CHANGING PERCEPTION this astonishing increase is a reflection of aver- OF INEQUALITY age CEO productivity growing more than seven times faster than that of workers over the last The title for the Intellectual Publication of the thirty years. Year 2014 should probably go to Thomas Piketty Then take a look at global inequality. The for his seminal book, Capital in the 21st Cen- Credit Suisse Global Wealth Report 2014 states tury, and the way it changed how we discuss that “taken together, the bottom half of the inequality. There is much speculation about the global population own less than 1% of total underlying reasons for the extraordinary, and wealth. In sharp contrast, the richest decile hold unexpected, success of the volume. Fortunate 87% of the world’s wealth, and the top percen- timing is certainly one reason. Along with the fact tile alone account for 48.2% of global assets”. that the ground was rather well prepared by the The authors of the study also worry about future likes of Joseph Stiglitz, Emmanuael Saez, Tony growth as these levels of inequality “have always Atkinson, Robert Reich, Richard Wilkinson and signalled recessions in the past”. This is due to Kate Pickett to name just a few. However the the circumstance that the economy needs sup- really important point is that Piketty’s book has ply and demand and that aggregate demand is brought inequality into the political mainstream suppressed if more and more income and wealth and started a discussion about fairness. moves towards the top. The propensity to spend Piketty’s core argument, that the return on is much higher at the lower end of the income capital is structurally greater than economic scale and the auxiliary mechanism of substituting growth leading to ever increasing inequality, has income with debt to support aggregate demand triggered an important shift in perception. The also seems to have run its course. general view of inequality used to be that its exis- Even though inequality is back at an all-time tence is the norm, even necessary, as the result high and its perception has changed, we have of a meritocratic society. Not everybody can yet to see a major political reaction on either side perform at the same level so inequality is the fair of the Atlantic. But the more empiric evidence reflection of performance differences.Addition- becomes available the more entrenched the ally, one must not redistribute income and wealth perception of unfairness is likely to become. The within society as this would lead to disincentives genie is out of the bottle and it will be difficult to for high performers and, as a result, society as a put it back. Therefore, the major contribution of whole would suffer. Thomas Piketty to the political debate is not just The simple and convincing argument about that r > g but also that inequality = unfairness. the structural nature of inequality in capitalist systems has shaken this view to the core. Most people are now open to the suggestion that THE DAWN OF THE DIGITAL inequality is not the fair outcome of different lev- REVOLUTION els of performance but, moreover, the result of a distributive system that is fundamentally flawed Another ground-breaking book published in 2014 and designed to favour a few people at the top. was The Second Machine Age: Work, Progress, From this new point of view the empiric evidence and Prosperity in a Time of brilliant Technolo- is also seen in a rather different light. gies by Erik Brynjolfsson and Andrew McAfee Take executive pay for instance. According to of the Massachusetts Institute of Technology the AFL-CIO, the CEO to worker pay ratio in the (MIT). Following the First Machine Age, which US rose from 46 to 331 between 1983 and 2013. was the industrial revolution that made much There is simply no credible case to make that manual work obsolete through the introduction INEQUALITY AND WORK IN THE SECOND MACHINE AGE 3 “TECHNOLOGY HAS BEEN Talking at the headquarters of Google, Erik Brynjolfsson argued that: “There’s kind of a MAKING THE PIE BIGGER, dirty secret in economics that not many people BUT MOST OF THOSE recognize (…). While technology can grow the BENEFITS HAVE BEEN economic pie (…) there is no economic law that says that everyone’s going to benefit from those ACCRUING TO A RELATIVELY technological gains. (…) It could be 50% or more SMALL GROUP” of people who don’t share in those benefits, and the data suggests that in the past 10 to15 years, that has been the pattern that has been emerg- ing. Technology has been making the pie bigger, but most of those benefits have been accruing to a relatively small group.” Labour markets in particular look exposed to the forces of progress. Many ‘middle class’ jobs will be vulnerable as a result of techno- logical change, either through the possibility that white-collar jobs themselves can be automated, of new machinery, we are now at the beginning or that employers are at the losing end of global of the Second Machine Age. In this new age, the competition as markets become more polarised. maturing of digital technologies will allow for the As Brynjolfsson and McAfee wrote: “Digitization automation of many cognitive tasks leading to creates winner-take-all markets because (…) similar social and economic impacts as those with digital goods capacity constraints become during the industrial revolution. The authors’ increasingly irrelevant. A single producer with a analysis is based on years of research and a wide website can, in principle, fill the demand from variety of real-life evidence showing how new millions or even billions of customers. (…) Every technologies are penetrating our economic and digital app developer, no matter how humble its social lives. Following these arguments it is not offices or how small its staff, almost automati- hard to believe that we are, indeed, at the brink cally becomes a micro-multinational (…)” of a period of accelerated innovation responsible If you look at the problem of inequality through for fundamentally changing the social and eco- the combined lenses of Piketty – who exposed nomic fabric of our society. deep-seated structural problems in the primary They key problem is that these technology- distribution system – and Brynjolfsson & McAfee driven developments are certain to further – who showed that the increasing impact of digi- increase existing inequalities and create new tal technology will reinforce these problems and ones at a time when, as Piketty has shown, we even create new ones – you discover a major are already back at unsustainable levels. What political problem. When large parts of the mid- Brynjolfsson and McAfee’s analysis suggests is dle classes are threatened with unemployment that even though the first impacts of the digital through no fault of their own, the level of political revolution have already become visible over pressure will rise. At times in which the political recent years, we have by far not seen the worst process is more and more focussed on the short yet. New developments likely to accelerate term, it is dangerous that long-term policy think- social polarisation are just about to kick in with ing is widely neglected. full force as the economic and social impact of My argument here is that these circumstances digital technologies accelerates. will force new policy thinking to ensure that the 4 THE WORKER INSTITUTE undoubtedly great benefits of the digital revolu- agents by 2025. But they have faith that human tion are spread evenly throughout society and its ingenuity will create new jobs, industries, and detrimental effects minimised. It is much better ways to make a living, just as it has been doing being in a position to shape the process than since the dawn of the Industrial Revolution.” being exposed to unmitigated forces of change. The variation in responses is not due to dis- So what could the parameters of this new policy agreements about the short-term effects of the thinking be? digital revolution on economies and workers. It is rooted in the question of whether economies can repeat historic patterns and eventually create THE ECONOMICS OF WORK IN more jobs than are being destroyed by techno- THE SECOND MACHINE AGE logical change. However, even if this positive scenario becomes reality, there is the danger of A significant number of tasks embedded in the creation of swathes of transitional unemploy- white-collar jobs can and will be automated in the ment and a significant role for public policy to years ahead. Whether you think about secretarial shape the process so the sombre scenario of work, text analysis, or even more complex work social breakdown does not become a reality.