Digitalization will not make us redundant
If history tells us one thing, it is this: Over time, every technological advance has led to greater prosperity and higher rates of employment. Despite digitalization, we're not going to run out of work.
"Automation is not our enemy. Our enemies are ignorance, indifference and inertia," said US President Lyndon B. Johnson, addressing his fellow Americans from the Cabinet Room in the White House. "Automation can be the ally of our prosperity if we will just look ahead, if we will understand what is to come, and if we will set our course wisely after planning for the future." This was his message in August 1964 as he signed a bill creating the National Commission on Technology, Automation and Economic Progress.
President Johnson was responding to concerns about the consequences of automation. A much-quoted article by two young Canadians, physicist and writer John J. Brown and Eric W. Leaver, an inventor of instruments, had alarmed the US public. In 1946, they argued in the business journal Fortune that modern technology would soon make it possible to carry out industrial production without the involvement of human workers. In 1961, the weekly news magazine Time warned of the danger of mass unemployment: "In the past, new industries hired far more people than those they put out of business. But this is not true of many of today's new industries."
The prophets of doom were wrong
As we know today, it was a false alarm. Only a short time later, fear of what automation might bring had subsided. From the 1960s on, the economy was booming and there was full employment. Global per-capita GDP increased 20-fold between 1965 and 2015.
Fifty years after Johnson's initiative, however, anxiety about technological change has returned with a vengeance. "You're fired!" read the title headline of the German news magazine Der Spiegel. The subtitle: "How computers and robots are taking away our jobs." And Jeremy Rifkin, one of the most influential economists in the United States, warned of "the end of work" in a book of that title.
But now it is no longer automation that is causing unease, but digitalization. Are the prophets of doom right this time? It's quite possible that digitalization will cause a very different kind of disruption from that triggered by automation. The fact that the doomsayers were wrong last time doesn't necessarily mean that there is no cause for concern. Yet it is hard to imagine that everything will be different this time. Seen in a historical context, the advent of digital technology is not an unusually disruptive development.
Between 1855 and 2016, the number of jobs increased from 11.25 million to 31.74 million.
Factories were much more disruptive
The transition from manual to factory-based production two hundred years ago was a far more profound change; within a matter of decades, it put an end to traditions stretching back thousands of years. It could hardly have been more disruptive.
In the mid-19th century, the steamship, the railroads and the telegraph forged connections that brought the global economy together. In relative terms, they did more to bridge what were at that time staggering distances than the mobile telephones, internet and improved shipping containers that have emerged over the last few decades. Automobiles, electricity and eventually air travel became accessible to the mass market in the late 19th and early 20th centuries. They, too, revolutionized both business and society.
One might have expected these major technological breakthroughs of the past to produce mass unemployment. But statistics provide no evidence that this was the case. Data sets from Great Britain, where industrialization began, show that the amount of work performed has grown steadily since 1855. Between 1855 and 2016, the number of jobs increased from 11.25 million to 31.74 million. Moreover, the unemployment rate has been cyclical, rather than showing a long-term upward trend. In 2016 it was approximately 5 percent. Only in rare periods did it reach double digits, and only when there was a severe recession.
The British data show that disposable annual income, adjusted for inflation, increased 14-fold between 1760 and 2016 – despite industrialization, the introduction of motor vehicles, automation and digitalization.
Three reasons for optimism
How and why has it been possible to mitigate the disruptive effects of change? A look at the historical evidence reveals three mechanisms:
- First of all, it takes a long time for new technologies to have an impact on other industries. Electricity did not eliminate the use of coal. As recently as the 1970s, coal was still one of the most important energy sources in many OECD countries. Digitalization, too, appears to be a slow process. The computer was invented a long time ago, but its effects are only now showing their full impact in our day-to-day lives. Books and telephones are in no danger of disappearing. On the contrary – more books are being published today than ever before.
- Second, while technological change has eliminated certain traditional occupations, it has made others more important, at least for a while, thereby creating new job opportunities. As trains became more common, for example, there was an enormous increase in the amount of traffic by horse-drawn vehicle. The declining price of transport from one major center to another resulted in more goods being transported overall, and they still had to make their way to their final destination. Until the invention of the automobile, this required the use of horse-drawn vehicles. The same mechanism is at work today in the spread of e-commerce. The number of truck deliveries has risen, because the volume of packages shipped has dramatically increased. The online behemoth Amazon has a workforce of 560,000, making it one of the world’s largest employers. At least temporarily, this has created a demand for less skilled workers, which has had a compensatory effect.
- Third, wealthy countries have created institutions to help alleviate the negative effects of technological change. At the end of the 19th century, compulsory schooling was introduced in all of the European countries and North America. Unemployment insurance followed in the 20th century. And finally, universal suffrage has ensured that the losers in the process of technological change have a voice. In a democracy, there can be an open debate about new technologies. This increases the likelihood that employees and employers will adjust quickly enough to the new technologies.
In the short term, some will lose out
There is no question, however, that every technological advance produces short-term losers. Many jobs disappear. These include not only low-skilled positions, but also typical mid-level occupations in fields such as bookkeeping and credit assessment [see article on page 34]. But there is no reason to expect that an abrupt change will trigger massive structural unemployment. Most workers will have sufficient time to find a new occupation, and the rest will have opportunities for retraining.
Most positions that exist today are not in great danger, because the labor-intensive service sector is the source of most jobs. The trend toward service jobs is likely to continue, since the industrial sector is continuing to boost productivity and will be laying off workers. We can also expect that instead of replacing workers, more intelligent machines will make work more productive.
Real incomes have continued to rise
In the long term, the technological progress of the past 200 years has always boosted both employment and prosperity. As productivity increases, prices drop and wages rise. This results in higher demand for goods and services, which in turn creates more jobs. Increased prosperity creates new needs and eventually new markets. The British data show that disposable annual income, adjusted for inflation, increased 14-fold between 1760 and 2016 – despite industrialization, the introduction of motor vehicles, automation and digitalization.
Structural change may be unrelenting, but we have dealt with it successfully for 200 years. There is no reason to believe that everything will be different this time.