The Work And Inequality Challenge Of The Digital Revolution: How Should Governments Respond?

After more than half a decade of debate dominated by the global financial crisis, 2014 saw a departure from this singular focus. Thomas Piketty started a global discussion about historical patterns of inequality and their negative repercussions. And looking to the future rather than back in time, The Second Machine Age by Erik Brynjolfsson and Andrew McAfee of the Massachusetts Institute of Technology showed how the digital revolution is about to transform our economic and social lives. The key problem for policymaking is that these technology-driven developments are certain to further increase existing inequalities and to create new ones at a time when, as Piketty has shown, we have already returned to historically high levels.

The Digital Revolution And Jobs

Labour markets in particular look exposed to the forces of progress because many ‘middle-class’ jobs will be  vulnerable as a result of technological change, either through automation or as a result of more polarised global competition. A significant proportion of tasks embedded in white-collar jobs can and will be automated in the years ahead. Whether you think about secretarial work, text analysis or even more complex work such as the processing of new research (which IBM’s Watson supercomputer already does), there are significant changes on the horizon. Studying the structure of work in the US, Carl Benedikt Frey and Michael Osborne  came to the conclusion that as much as 47 per cent of total US employment is at risk, while the equivalent figures for European countries, calculated by the Brussels-based think tank Bruegel, range from about 47 per cent in Sweden and the UK to 62 per cent in Romania.

The Pew Research Centre in the US canvassed almost 2,000 experts about their expectations for the coming decade. Although predictions about the end state vary, there seems to be little disagreement about path we are on:

Half of these experts (48%) envision a future in which robots and digital agents have displaced significant numbers of both blue- and white-collar workers – with many expressing concern that this will lead to vast increases in income inequality, masses of people who are effectively unemployable, and breakdowns in the social order. The other half of the experts who responded to this survey (52%) expects that technology will not displace more jobs than it creates by 2025. To be sure, this group anticipates that many jobs currently performed by humans will be substantially taken over by robots or digital agents by 2025. But they have faith that human ingenuity will create new jobs, industries, and ways to make a living, just as it has been doing since the dawn of the Industrial Revolution.

The variation in responses is not down to disagreements about the short-term effects of the digital revolution. Instead, it is rooted in the question of whether economies can repeat historical patterns and create more jobs in the end than are destroyed by technological change along the way. Either way, there remains a significant role for public policy to shape the process so that the sombre ‘social breakdown’ scenario does not come to pass – and, even if the positive scenario becomes reality, to manage the risk of huge amounts of transitional unemployment.

There are big political problems on the horizon. When large parts of the middle classes are threatened with unemployment through no fault of their own, the political pressure will rise. At a time when the political process is more and more focussed on the short term, it is a dangerous omission if long-term policy thinking is neglected. Here I would like to make three suggestions as to what a framework for this kind of (badly needed) new thinking might look like.

A Framework For Policy Responses

First, when jobs are replaced, job descriptions change beyond recognition and completely new types of work might arise a proactive educational policy is essential. This is common sense and should lead to an immediate rethinking of what today passes as suitable educational policy. Much of today’s standard education still relies heavily on committing facts to memory rather than on building analytical and creative capabilities. This was understandable in days gone by when access to information was not necessarily a given, but today information is always available. Instead, it has become much more important to know what to do with it. Analytical and creative capabilities will be the core ingredients of successful careers in the future, as they are transferable and can be applied to new contexts. At the very least, the digital revolution will demand that workers are more flexible and adaptable, and our educational systems need to reflect this much more than they do currently.

The second suggestion concerns the distribution of work. In a sense we are back in 1930 when John Maynard Keynes wrote about The Economic Possibilities for our Grandchildren. In his seminal essay, he predicted that economic progress would mean that, for the first time, future generations would be freed from taking care of pressing economic needs. He was certainly right about the degree of economic development but wrong about the 15-hour working week that he predicted. Keynes believed that with most economic needs fulfilled, people would opt for more leisure time rather than the diminishing returns of increasing income.

One policy goal should therefore be creating the economic preconditions for and incentivising the reallocation of work. The cofounder of Google (or should I say Alphabet?), Larry Page, seemed to think along the same lines when he suggested that we should all work less or divide jobs between more people. In this, Page joins the likes of Virgin founder Sir Richard Branson, who has long argued that more flexible working hours would allow for a better allocation of work. Our lives are becoming more complex and the division between work and leisure is becoming increasingly hard to draw. Creating a framework in which work is distributed more efficiently would therefore be very welcome.

My third suggestion concerns people who cannot benefit from better education or a reallocation of work and still find themselves unemployed. In The Second Machine Age, Brynjolfsson and McAfee warn about defective aggregate demand in the economy as a result of high unemployment, but they stop short of making a direct policy recommendation. Instead, they suggest that the idea of a basic income should be revisited while acknowledging the fact that work also has important social purposes beyond simply earning a living.

Without going more deeply into the debate about the basic income, there are at least two major drawbacks to this solution. The first is the one acknowledged by Brynjolfsson and McAfee: work does not just generate income but is also a source of fulfillment and self-esteem and an important part of our daily social interactions. This important function cannot be replaced in a change to ‘handing out money’ so that people can remain functional consumers.

The second aspect is that, by its usual definition, a basic income is paid to everybody, including the ‘winners’ of the brave new digital world, and therefore represents an inefficient use of scarce public resources. It is often said that money paid to the rich can be reclaimed through the tax system. This is easier said than done. If recent experiences with taxing the rich are a guide one can expect significant difficulties in claiming the basic income back, especially given that the tax system will already have to deal with new challenges as inequality becomes even more pronounced.