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Economic Development

The Race vs. the Stagnation

Two economists offer opposite explanations about why job growth in the United States and other developed economies remains extremely weak.

Race Against The Machine

Erik Brynjolfsson & Andrew McAfee

Digital Frontier Press, 67 pages, 2011

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Where are the jobs? Amidst the many questions about the domestic and global economy, the most worrying is perhaps the most basic. Historically, job growth has resumed quickly, even after recessions. But despite the technical end of the Great Recession, job growth in the US and other developed economies has remained extremely weak. The last decade was the first since the Great Depression in which the United States recorded zero net job growth.

Left to consider this mystery, two economists, predictably, arrive at opposite explanations. Tyler Cowen’s The Great Stagnation argues that we are living through the consequences of a dramatic decrease in the rate of innovation. To illustrate his point, Cowen compares his life to that of his grandmother. Between the 1910s and 1950s, she went from not having indoor plumbing or electricity to owning a stove, refrigerator, and other appliances, whereas the only machine in Cowen’s kitchen is a microwave. Nice innovation to be sure, but hardly the radical change his grandmother experienced. The consequence of slowing innovation, argues Cowen, is fewer new industries and less creative destruction. Hence, no new jobs.

Erik Brynjolfsson and Andrew McAfee analyze the same bleak jobs reports and conclude that the root cause is not a decline in innovation, but an acceleration of innovation. Technological advancement has moved so fast that many people are losing the “race against the machine.” Computers are rapidly performing tasks that used to require humans, but workers are not adding new skills fast enough to find new jobs. The authors call the innovation that is occurring “skill-biased technical change,” in that it hurts workers with skills that can be automated and dramatically increases the productivity of the few high-skilled workers who can access and manipulate more information more quickly. Hence, no new jobs.

These opposite beliefs can be reconciled more easily than is immediately apparent. Brynjolfsson and McAfee focus on the technology sector, where it appears that innovation is happening more rapidly than ever. Cowen looks at the entire economy and sees stagnation, or regression, in large sectors, such as health care, education, and government—indeed any sector that deals more with managing people than with managing things, the former being more complex and less conducive to innovation and job creation. As general innovation opportunities have slowed, businesses turn to the next activity with the highest return: cutting costs by using technology advances to automate processes and eliminating the need to hire more workers to produce more output.

Both arguments are compelling, yet the frightening thing is that both books predict the jobs crisis will not end soon. Cowen, in keeping with his libertarian views, writes that relatively little can be done until conditions naturally evolve for another era of rapid innovation. Brynjolfsson and McAfee, buoyed by their technological view of the world, are more activist. But their prescriptions fail to induce much confidence. They note, for instance, that current conditions demand “hyperspecialization” from workers. But our educational systems are built to create large numbers of generalists, few specialists, and very few hyperspecialists. Brynjolfsson and McAfee also invoke entrepreneurship and the greater ease today’s entrepreneurs enjoy starting new businesses. This enables “parallel experimentation by millions of entrepreneurs,” which they believe is where new jobs will come from. But again, there are no successful formal mechanisms in place to train entrepreneurs—and millions of those entrepreneurs will fail and perhaps hyperspecialize so far that they will have trouble starting over. It would take a much longer book to explore these prescriptions, but the feeble ones presented here—to fix education, make more entrepreneurs, and invest in infrastructure—rehash ideas that have been around for decades. They are ideas whose execution, to use Cowen’s phrase, has stagnated.

Still, all the authors fervently believe that things eventually will get better. The open question is how bad things will get in the meantime. As President Franklin D. Roosevelt noted, and Brynjolfsson and McAfee quote, “demoralization caused by vast unemployment is … the greatest menace to our society.”

The uninspiring nature of Brynjolfsson and McAfee’s prescriptions should serve as the latest wake-up call to the social sector. For years, we’ve been talking about our inability to provide an affordable, quality education to a larger slice of the population. For years, we’ve been talking about the glories of entrepreneurship, social or otherwise, without any measurable progress on improving the success of—or providing the necessary skills and capital for—aspiring entrepreneurs outside of the elite. The cost of these failures is no longer a future problem. It is a present problem. If we are to escape the great stagnation and win the race against the machine, urgent action is needed. To fight the greatest menace to society, we’ll need a lot more experiments in education, regulation, retraining, and social programs for those left behind in the race against the machine and job-shedding innovations.

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COMMENTS

  • Tom Austin's avatar

    BY Tom Austin

    ON August 3, 2012 01:56 PM

    Truly a deep problem.

    I’ve followed David Autor’s work on the effect of technology on roles and employment. Powerful stuff.

    I loved McAfee’s and Bryjolfsson’s work for years ...

    I remember writing about this topic on my Gartner blog two years ago. http://blogs.gartner.com/tom_austin/2010/09/14/unmet-social-and-moral-obligations-of-the-it-industry/

    We as an industry (IT) and as a society (American, Western, Human and Global) have not taken the time to address these issues. We’re not luddites here. We see a real problem that’s way too politicized in the current environment. The middle class is being gutted and a major contributor is high tech. The cycles are coming too fast for people to adapt to creative destruction.

    We are headed towards crisis at breakneck speed but we trivialize it and ignore it (or treat it as political fodder).

    Sigh…

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