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In a tech-powered economy, productivity and innovation, the focus of policy makers and business leaders, no longer guarantee widely shared prosperity. (Rupert King/Getty Images)
In a tech-powered economy, productivity and innovation, the focus of policy makers and business leaders, no longer guarantee widely shared prosperity. (Rupert King/Getty Images)

PRODUCTIVITY

A tech-powered end to the middle class Add to ...

One way to divide people is into those who think this time is different and those who believe there is never anything new under the sun. That split can be a matter of temperament, of politics or even of religion. But today it is relevant for another, more urgent reason: It describes how people think about the most critical economic problem in the industrialized world – the dearth of well-paying middle-class jobs.

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The first school attributes a lot of what is happening to the technology revolution. It includes wide-eyed enthusiasts who believe in human progress and in the transformational power of technology. But it also includes hand-wringers who fear the unprecedented changes may bring unprecedented woes.

That combination of Pollyanna and Cassandra is perfectly embodied in the multifaceted mind of Al Gore. The former U.S. vice-president is a longtime fan of the geeks, and in his post-political life he has very nearly become one of them, with his seat on the Apple board and senior partnership with Kleiner Perkins Caufield & Byers, a venture capital firm in Silicon Valley.

It comes as no surprise that in his new book, The Future, he foresees a world of “hyper-change” in which the tech revolution is “carrying us with it at a speed beyond our imagining toward ever newer technologically shaped realities that often appear, in the words of Arthur C. Clarke, ‘indistinguishable from magic.’”

Mr. Gore notes that the Luddites, who feared that the Industrial Revolution would create structural unemployment, were wrong: “The new jobs that emerged in factories not only outnumbered those lost on farms but produced higher incomes, even as farms became far more productive and food prices sharply declined.”

Yet he warns there is no guarantee history will repeat itself. In particular, he worries that thanks to the tech revolution, the traditional link between rising productivity and a rising standard of living for the middle class has been broken. He worries that severed link may be causing the economic slowdown in the developed economies: A weakened middle class lacks the spending power to drive growth.

One of the smartest academics studying this phenomenon is Erik Brynjolfsson, a management professor at Massachusetts Institute of Technology. The co-author of a new book, Race Against the Machine, believes the tech revolution is having a powerful and unprecedented impact. “Most of the debate … is missing the tectonic changes in the way the economy works, which are driven by technology,” he said recently. “This is the big story of our time, and it is going to accelerate over the next 10 years.”

Like Mr. Gore, Mr. Brynjolfsson thinks the canary in the coal mine is the decoupling of gains in productivity and in wages. “Productivity since 2000 has grown faster than in the 1970s, ’80s or ’90s,” he said. “But starting in the late 1990s, we’ve had this decoupling of wages from productivity.” He sees this as a historic watershed, noting that there is “no economic law” that productivity and jobs go together.

That change has tremendous implications. Productivity and innovation, the focus of policy makers and business leaders, no longer guarantee widely shared prosperity. “Digital technologies are different in that they allow people with skills to replicate their talents to serve billions,” Mr. Brynjolfsson noted. “There is really a drastic winner-take-all effect because every industry is becoming like the software industry.”

The danger isn’t structural unemployment (as many feared during the depths of the financial crisis). The problem is what kind of jobs, at what kind of salaries, the tech-powered economy of the future will generate.

Lawrence Summers, the Harvard professor and former U.S. secretary of the Treasury, has a vivid description of the dystopian possibility. “As economists like to explain, the system will equilibrate at full employment,” he said at last month’s World Economic Forum in Switzerland. “But maybe the way it will equilibrate at full employment is there’ll be specialists at cleaning the shallow end and the deep end of rich people’s swimming pools. And that’s a problematic way for society to function.”

This is a personal problem – who wants to prepare their children for a life of pool cleaning? It is also a political one. As Mr. Brynjolfsson points out, the tech revolution does have winners. The share they reap from the increase in productivity is greater than ever – and they might quite like a world of specialists in various depths of pool cleaning.

Chrystia Freeland is editor, Thomson Reuters Digital.

 

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