Technological innovation at work should be thought of in terms of supporting labour, not supplanting it.
Ever since the days of Adam Smith, economic science has taught that technological development always benefits the overall productivity of the economy, leading to automatic increases in wages and improved working conditions. This conventional wisdom is however challenged in a new book, Power and Progress, by two of the world’s leading economists, the Massachusetts Institute of Technology professors Daron Acemoglu and Simon Johnson.
Drawing on a millennium-long western perspective, they argue that the pattern has often been different from what economic theory suggests. But they do identify two historical correspondences: the latter half of the 19th century and the initial decades after World War II. So what explains these exceptions, where technological development was indeed associated with higher productivity, rising real wages and improved living standards for the vast majority?
The concise answer is that technology needs to evolve in a labour-friendly direction, guided by a normative framework steering society in this direction. Productivity-driven prosperity has historically worked when technological development created many new tasks, rather than merely replacing employees with machines. For labour-friendly technological development to lead to a general increase in prosperity, however, political measures are additionally required to strengthen the bargaining power of workers, compelling capital to share the surplus created by productivity growth.
The industrial revolution in England had been going for nearly a century before technology and policies began delivering economic prosperity to the majority. This unique shift was rooted in technology focusing less on labour-saving automation and more on innovations that increased productivity and created new tasks. Simultaneously, with the legitimisation of trade-union organisation and the advent of collective bargaining, workers’ positions were strengthened against business owners. The expectations of increased prosperity that had existed for almost a century began to materialise.
The initial decades after the second world war also saw technological development furthering industrial production, resulting in increased productivity and new tasks across the economy. Technological development not only drove labour-saving automation but also contributed to a high demand for labour. The direction was similar in many countries: stronger trade union influence, collective wage bargaining and reforms favouring the position of workers in the labour market.
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The deviation from around 1980 can mainly be explained by technological and global development shifting to favour capital owners at the expense of workers. This was compounded by an ideological shift enabling and justifying the elevated position of capital. Inspired by economists such as Milton Friedman and Friedrich von Hayek, employer advocacy strengthened, with a greater focus on maximising profits and share prices. This triggered a pushback against trade unions, deemed hindrances to fulfilling the doctrine.
While the figure of Smith is essential for the moral justification and political implementation of this perspective, the result has been weaker productivity growth, stagnant real wages, soaring income inequality and a declining wage share in many western countries. Artificial intelligence has further worsened the situation. Intelligent machines are primarily developed to become smarter than humans and perform better tasks previously done by employees. This leads to displacement of the workforce without AI contributing to a sufficient number of new tasks. The way forward should be to guide intelligent technology to favour the contributions of workers to production, focusing on machine usefulness rather than machine intelligence.
Contemporary technological development, therefore, does not lead to significant productivity growth but rather to an insufficient number of job opportunities. What reforms can reverse this trend?
The state can contribute to making innovation policies more pluralistic, with less focus on automation and surveillance. Large corporations, such as Google, Facebook and Amazon, should be split up into smaller units. Higher education and research should become more independent of business interests. Increased transparency is needed, and rules concerning lobbying should be tightened. And the imbalance between capital and labour taxation should be addressed: the tax system should favour employing a worker over accruing capital, and should incentivise investment in lifelong learning.
The overarching message of Power and Progress is that we can choose our future: we are not bound by technological or economic determinism. If we want a different future, it is up to us to dig where we stand.
Focusing on Sweden, exploding income inequality is not due primarily to a weakened bargaining position for workers but rather macroeconomic policy. Since the mid-1990s, Sweden has had a centrally negotiated wage mark that is mandatory or guiding for all companies operating in the country—unlike the United States or the United Kingdom, which lack such centralised negotiations, resulting in wages increasing much more slowly than productivity.
Following Acemoglu and Johnson, the primary reform needed in Sweden is not to strengthen the bargaining position of workers but to leave behind fatalistic reference to globalisation and the Friedman doctrine. The question is how an alternative vision should be formulated and concrete policies designed.
The economic policy of recent decades has resulted in Sweden underinvesting in productive capacity in almost all areas. We must abandon the notion that taxes are always harmful to the economy: it is about how we spend the money. And we should recognise that small income differences and equal life chances are most often productive for the economy. Nor should the interests of employers be elided with the common good. Sweden should be more pro-market and less pro-business: competition is often inadequate, not least in construction, retail grocery and the banks.
Applying the reasoning in Power and Progress, Sweden might have been technologically naïve. Allied to extremely low capital taxes, this has resulted in overly capital-intensive companies with an unfavourable technical focus, too few wage-earners and unnecessarily low productivity.
Instead, Sweden should build on its strong trade-union movement, leading to a more labour-friendly path. Politics and the social partners should therefore stimulate a societal discussion on how the developments of technology in general, and AI in particular, can better complement the contributions of employees to production.