The perplexity of life arises from there being too many interesting things in it for us to be interested properly in any of them.
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The "current technological revolution could change our economy, our society, our everyday life . . . to a magnitude even greater than the Neolithic Revolution (first Agricultural Revolution) or the Industrial Revolution, and at a much faster speed." Brynjolfsson and McAfee (2014, The Second Machine Age) have called the period that is now underway "the Second Machine Age," and there is a basic difference with respect to the first, which was based on the steam engine surpassing the physical limits of men and animals. The current revolution relies on the digital technologies surpassing the limits of human intellectual abilities. The rapid progress of artificial intelligence, robotics, or biosciences will force us, in the not so distant future, to undergo a far-reaching reassessment of the bases of our economy, society, culture, our ethical principles, and even our basic ontological foundations. To all this uncertainty, we must add that, in the last few years, global economic growth and productivity have experienced lower performance than in previous decades, in contradiction to the historical evidence that periods of technological acceleration caused substantial increases in productivity and growth. This contradiction has provoked intense debate among economists. In short, the controversy appears to be that the "techno-pessimists" think that digitalization is having a lower impact on productivity than other innovations of the past (Gordon, 2016, The Rise and Fall of American Growth) and/or that its positive effect is counteracted by the democratic decline in developed countries and or/by the increase in inequality, that persistently depresses aggregate demand (Piketty, 2013, Capital in the Twenty-First Century; Stiglitz, 2015, Inequality and Economic Growth). On the other hand, we find the "techno optimists," who are those that think that there is a problem of under measuring products, because the improvements in quality and their benefits are not calculated correctly, or because they are increasingly concentrated in services and intangible assets, that are much more difficult to assess (Feldstein, 2017, Underestimating the Real Growth of GDP, Personal Income, and Productivity) or, in other cases, that we are in a transition stage that is still greatly affected by the consequences of the crisis. The global economy may still be going through a much-needed period of deleverage and correction of the weaknesses of the global banking system, which depresses consumption and investments along with the provision of public services. If this is the case, this stage would be followed by another one of much quicker growth encouraged by the technological progress.
In fact, historical experience shows that new technologies, especially the most disruptive ones, need some time until the moment comes when their price and level of adoption allow their widespread use, when they also combine with other technologies. And from that point on, they have an increasingly stronger impact on productivity and living conditions. Brynjolfsson & McAfee (2014, The Second Machine Age) think that we are reaching that turning point, which would equate to the start of what Klaus Schwab (2016) calls "the Fourth Industrial Revolution." If this were so, we could be entering a period of high growth and improved well-being driven by a combination of different technologies, including computing, increasingly complex, interconnected networks, artificial intelligence and cybernetics, biotechnology, and, probably, others that we do not even know of yet. History shows that in the same way that technological progress brings about growth and wealth, it also creates jobs, more jobs, very different from any previous, more productive, that improve people's lives, in spite of growing inequality (Mokyr, 2014, The History of Technological Anxiety and the Future of Economic Growth; Autor, 2015, Why Are There Still So Many Jobs?). This is also what we have seen in the last few decades. Despite all this, some authors have pointed out that this time it could be different, even if growth accelerates, for three main reasons:
Using these arguments, authors like Frey and Osborne (2013, The Future of Employment) have pointed out that up to 47% of the employment in the United States would be at risk of being automated. Others (Arnts et al., 2016, The Risk of Automation for Jobs in OECD Countries), however, show that if we bear in mind the different tasks implied in each job, only 9% of the employment is automatable, as an average, in 21 OECD (Organization for Economic Co-Operation and Development) countries. The latter would, for instance, be a much lower figure than that of the jobs lost in the agricultural sector in the last few decades, which have been regained in other sectors. In conclusion, it is impossible to foresee the magnitude and the speed at which the effects of growth, employment, equity, and general welfare caused by such a vast technological revolution that is being born will show. We can fear all kinds of dystopias, but we can also consider the technological revolution as a great opportunity to improve the welfare of citizens all around the world. Even if, as many of us believe, progress and social welfare have always been the result of technological advances (and at this time does not have to be an exception), positive effects have always appeared after a transitional process, with winners and losers. And this fourth Industrial Revolution poses especially complex challenges. In any case, the results will always be better and the costs lower if the right policies are implemented; policies that do not create any resistance against technological progress, but, rather, promote equal opportunities: That means making them available for all, and reducing transition costs in the short and the medium term.
There are lines of actions that contribute, simultaneously, in order to reach all these goals: We must promote research, development, innovation, as well as entrepreneurship, and encourage transparency and competitiveness in the markets, and develop the required infrastructures. Equal opportunities require an exceptional effort in the area of education; education focused on obtaining additional skills that do not replace those required for technological progress, that promote continuous education and ongoing training, and which evolves along with the needs of society. The labor market must be another important priority. Barriers to the growth of companies, investment, and job creation must be eliminated. Better active and passive policies against unemployment must be developed. A balance in taxation must be found so that district redistribution does not damage investment. And regulation must be updated to care for the wider diversity of employment status and the needs of self-employed workers. In spite of these policies, transition costs could still be considerable for certain segments. Due to this, it is vital to develop social protection systems that guarantee equal opportunities and provide protection for people in a rapidly changing environment, with high employee turnover and very different kinds of jobs. These policies must be closely integrated with education and employment systems designed to reduce economic and human costs.
But this task of encouraging the adoption of our economy and our society to the technological revolution, obtaining the most from it while reducing its costs to a minimum, does not belong to the public authorities. It is the task of companies and people, the whole civil society. And in this scenario, the financial system and its institutions can play a very important role. And it is to the financial system we turn our attention in the next post "A Financial System for Inclusive Growth." *Main source: Gonzalez, F., 2018, The Age of Perplexity, pp. 16-19* end |
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