The technology shock is also impacting most forcefully when there are other headwinds in the global economy. These include higher debt levels limiting future growth, the emergence of a negative demographic dividend and lower average credit growth because of more prudent banking regimes. For some countries, China’s rise was a net benefit precisely because China strengthened the global economy. Technology is impacting when the global economy is already more fragile, which makes the adjustment harder to take.
…AND IT CHALLENGES OUR IDEAS, AS MUCH AS OUR ECONOMIES
Beyond the economic impacts, technology is challenging a number of our ideas and analytical frameworks. The following isn’t an exhaustive list. We may even be listing some issues prematurely; nevertheless the scale of the challenge seems clear.
2016 was a year of political surprises: Brexit, Trump and even the Philippines’ presidential election shocked virtually all establishment forecasters. Apparent economic success did not seem to prevent political change. There is an economic underlay driving these results but by giving voice to those previously without one, social media may have fundamentally changed things.
In recent research, Robert J Shiller argues “the human brain has always been highly tuned towards narratives, whether factual or not, to justify ongoing actions, even such basic actions as spending and investing”. Social media platforms and 24/7 news cycles are allowing these narratives to flourish in a way we have never seen. Andy Haldane highlighted recent research using Facebook data, which showed that independently of local factors and conditions, the views of (economically and geographically distant) friends can materially change people’s views of the housing market. Managing ‘truth’ in these narratives is, of course, a critical issue, with which we are only beginning to wrestle.
Seven of the world’s top 10 companies are from the technology sector and all are either from China or the US. China is the only country to have put up firewalls around its domestic internet, email, social media and technology systems, so it doesn’t seem like a coincidence that China has managed to hold out against the enormous market power of the US platform companies.
This raises the question of whether the only way to compete with those huge companies (which have a head start in the technology space), is to quarantine domestic technology sectors. If technology companies genuinely demonstrate positive returns to scale – and hence can come to hold dominant positions across industries – then expect more discussion about how other countries can create their own champions, even if few countries offer the scale potential of China.
This issue is also intersecting with national security. With strategic issues rising in prominence globally, technology’s ubiquity in modern economies suggests that it is taking on some of the characteristics of a national defence industry. For instance, the Foreign Investment Risk Review Modernization Act, 2017 focusses on foreign acquisitions in the US that threaten US technological and industrial leadership.
The nature of work
The division and specialisation of labour is a foundational precept of economics. It has been a major driver of advances in living standards over the last three centuries. Henry Ford’s production line vehicles a century ago are perhaps the classic example.
With machine learning and artificial intelligence being increasingly applied to complex human tasks, Yuval Noah Harari points out the specialisation of labour is making it easier for algorithms to replace humans. The narrower the range of tasks performed by a human, the more amenable those tasks are to being replaced by technology. Does it follow, then, that creating more generalist and broader roles is a way to stay ahead of the latest wave of technological change?