The algorithms are coming

This one is a bit out of convention, but I decided to post it anyways. This is a paper I co-wrote with my girlfriend and at the time, classmate, on the subject of the potential effects the technological revolution (increase in automation) may have on employment moving forward. It is a bit heavy on economics jargon (and therefore possibly boring to most rational people – sorry economists, you’re exempted from this category) and for that I appologize. I decided to post it because I think it just becomes more and more relevant as technology progresses, not to mention the fact that it is something that interests me. Enjoy!

 

 

How Technology Alters Economic Paradigms: A Compare and Contrast analysis of the industrial and technological revolutions

By Chanelle Mather-Shapiro & Richard Smith

 

Tesla's assembly line was designed around having as few employees as necessary.

Tesla’s assembly line was designed around having as few employees as necessary.

Intro

When economists act as historians do, they have a tendency to analyze the past through the eyes of the present. In such, inductive reasoning is tainted by a bias of analyzing past lessons from a contemporary perspective. It is in this contemporary context of economic growth and technological change in which we seek to analyze the Industrial Revolution for lessons to apply to an unknown future where artificial intelligence rules. (Mokyr J. , 1997, p. 31) The technological advances brought upon by the Industrial Revolution created seismic social changes which fueled the movement from mercantilism to the new economic school of capitalism. The current technological progress occurring through the modern Technological Revolution is creating rapid social changes, which this paper predicts will force the world to shift from capitalism to some unknown school of economic thought. In such, through a compare and contrast type of analysis between the Industrial and Technological Revolutions, this paper argues that large technological advances in a relatively short period of time cause significant social changes which can lead to shifts in the ruling economic paradigm.

Industrial Revolution

The Industrial Revolution pushed civilization into the era of technology, with science as religion and social inequalities created by market structures, not by hereditary privilege. With the advent of machines easing agricultural labour requirements, such as the invention of the steam engine or even the idea of a factory, the Industrial Revolution saw technological unemployment force rural laborers into urban industries. Rather than creating a long-term unemployment rate, machine labour in the Industrial Revolution caused an employment shift, rather than an elimination. This was in part due to the disconnectedness between technology, science and communication. Technological innovations led to scientific breakthroughs, but the two were never codependent, resulting in slower growth and progress. (Mokyr J. , 1997, pp. 32-34)  As such, the majority of the effects from the Industrial Revolution were not felt until the latter half of the 19th century, some thirty years after the initial technological innovations began. It wasn’t until two generations, or until the mid-1840s, that full productivity gains and social impacts were felt. (Mokyr J. , 1997, p. 32) Overall, technological innovations were economic wide, benefitting agriculture, manufacturing, transportation and more.

 

Sheffields-East-End-1879

Social

Concern over the effects of machine labour on employment rates was founded by the advent of the Industrial Revolution. The expected technological unemployment from machine labour replacing man power in agriculture was compensated by reversal of factor intensive industries; with manufacturing claiming the extra human labour supplied by a dwindling demand in agriculture. (Majewski , 1986, p. 5) Though nominal wage rates remained relatively unchanged throughout the revolution, laborers real wage rose as prices of manufactured and agricultural goods fell with the rise in technology. (Majewski , 1986, p. 3) With the rise in real wages came the rise in standard of living for the average worker; most effectively demonstrated through the change in food consumption from pre-industrial to post-industrial days. (Hartwell, 1971, p.328-329) The rise in technology generated the greatest consistent agricultural returns in history, allowing for a sustainable hike in population numbers. (Majewski , 1986, p. 4) Moreover, technology allowed nations to support these growing populations, and an increased standard of living led to lower mortality rates in young and old alike. (Majewski , 1986, p. 5) This increased population found more jobs being created by factor intensity reversals, then being taken away by machine advances. However, this rampant population growth and industry shift came at the expense of the laboring class, in the form of horrendous working conditions. In such, the capitalist economy was born; where economic growth benefits the wealthy at the expense of the working class. (Majewski , 1986, p. 1) The Industrial Revolution brought incredible advances to societal structures, however social change was slow moving. Some economists such as Majewski (1986), pointed to government policies and international wars as the retarding factor of social improvement in the wake of the Industrial Revolution. (7-8)

Mercantilism to capitalism

The Industrial Revolution founded the contemporary capitalistic belief of class movement. The belief that hard work could change an individual’s fortune by either promoting or demoting their economic class provided a goal-driven belief system that still holds today. (Majewski , 1986, p. 7) The shift from mercantilism to capitalism cemented the stratification of economic classes into fortified social courses. Though capitalism is demonized by many as the destruction of social equality, it is heralded by others as promoting real economic growth throughout all classes. (Majewski , 1986, p. 2) The costs and benefits from this economic paradigm shift are difficult to quantify, and difficult to dissect one from another. When examining the past for hints at the future, it is difficult to fully understand, without hindsight bias, how one could have predicted that the emerging school would have been capitalism. However, it is not difficult to identify that there were forces at play leading the world into a paradigm shift. The forces that led the world from mercantilism to a new school of economics and social structure can be identified as technological advances that created real social changes. We seek to examine how these same forces are prevalent in today’s Technological Revolution.

 

Technological Revolution

This is what machine learning actually looks like. Doesn't seem like much on the surface, now does it?

This is what machine learning actually looks like. Doesn’t seem like much on the surface, now does it?

Despite being considered the primary driver of economic growth, technology has historically always caused anxiety in human society. From the Greek myth of Prometheus to modern public figures warning of the risks of artificial intelligence such as Elon Musk and Stephen Hawking (Lewis, 2015), people have been suspicious of technology and its effects on society. (Mokyr, Vickers, & Ziebarth, 2015, p. 35) From this, we seek to examine how advances in technology alter employment and social structures significantly enough to prompt an economic paradigm shift. It is not the quantity of technological or scientific breakthroughs which define our current progress as an “Industrial Revolution”, but rather the scope, the influence and most importantly, the interconnectedness of said technology and science. (Mokyr J. , 1997, p. 33) With advances in fields such as artificial intelligence through machine learning and the mass collection of data, the interconnectedness of progress achieved today is unique to this revolution. It is the web-like linking of ideas, the piggybacking of technological and scientific breakthroughs and the ease of access to information which are the most important factors promoting progress today. (Mokyr J. , 1997, p. 34) “For that reason, it seems unlikely that the pattern of technological development during our own Industrial Revolution will look even remotely like its predecessors.” (Mokyr J. , 1997, p. 34)

Social

Contemporary technological and scientific gains present historically unique challenges in the employment sector. Job growth in the United States has failed to compensate for the loss of employment from the 2007-2009 recession as artificial intelligence takes more and more of the employment sector. Unemployment rates rose, worker participation rate fell, and unemployment periods lengthened to their highest levels recorded since World War II. (Brynjolfsson & McAfee, 2012, pp. 1-2) Since the recession, we have also seen an overall decrease in demand for middle-skill jobs (such as middle managers and plant managers), as well as a lowering median wage for persons with little to no education beyond high school. This has put an increased pressure on lower wage jobs as there is a shift of workers from these middle-skill to lesser skill demanding jobs. (Mokyr, Vickers, & Ziebarth, 2015, p. 44) Measures of economic growth have continued to grow since the global recession of 2009, but unemployment rates have stayed high. Firms have rebounded through investment into machine and technological capital, at the expense of the working population. (Brynjolfsson & McAfee, 2012, pp. 3-4) Moreover, with revelations such as pesticides, GMOs and vaccines, the world now sustains the largest, and fastest growing population. The constant technological innovation has seen an increase in standard of living for all economic classes. Ultimately, technology has also been responsible for the decrease of the middle class, as middle skilled workers find themselves being replaced by artificial intelligence or machine labour. This eradication of the middle class further exacerbates the income inequality generated by capitalism, creating a society with levels of disparity unexplainable by capitalism. For society to keep up with the constant changes technology brings, the government will have to create adaptive policies to streamline this seismic shift in economic and social paradigms.

Capitalism to a New Economic Paradigm

 

Sometimes this is how we feel - sourced from http://nellucnhoj.com/ (a super awesome comic artist - go check them out!)

Sometimes this is how we feel – sourced from http://nellucnhoj.com/ (a super awesome comic artist – go check them out!)

The historic belief in class movement is being eradicated as low and middle skilled workers struggle to find jobs. Hard work, merit and even intelligence can no longer guarantee class promotion or demotion.  In fact, in 2011, economists estimated that even a doubling of new jobs wouldn’t recreate pre-recession levels of employment until 2023 as artificial intelligence takes over the employment market. (Brynjolfsson & McAfee, 2012, pp. 1-2) Paul Krugman, influential economist, explains high unemployment rates on the macroeconomic neoclassical business cycle analysis. He suggests that unemployment rates remain high due primarily to economic stagnation from the 2009 recession, not to the so-called technological revolution. Others, like Tyler Cowen, dismiss technological progress in lieu for technological stagnation as the result of economic hardship. (Brynjolfsson & McAfee, 2012, pp. 5-8) However, this paper proposes that the rising structural unemployment is a signal of the failure of capitalism to mitigate class inequality in the wake of technological advances. Technology today allows for communication between the sciences, which allows for an almost continuous improvement and advancement of human technological capabilities. Capitalism is not structured to keep up with these new technological developments, allowing for the possibility that technology may “lead to an economy where an ever-larger share of the population works for relatively low wages but can still enjoy a high standard of living through a variety of low-cost leisure opportunities, political disruption may be minimal. ” (Mokyr, Vickers, & Ziebarth, 2015, p. 45) What we see today is similar to the prediction of Keynes where there is indeed an increased amount of leisure activity at a significantly lower cost than in previous times (such as time spent on the internet, video games, digital arts and music etc.). This look into the direction society is going may perhaps create a world where there are complete substitutes for labor, leaving large sections of the labor market dislocated. (Mokyr, Vickers, & Ziebarth, 2015, p. 43) As such, a new economic school of thought is required to explain, understand and predict the global economy.

Compare and Contrast

The imagination and concerns of economists during the Industrial Revolution was limited by the era’s technological capacity – machines could and did replace many tasks which required human or animal strength or “man-power”. That said, the machines of the era were incapable of decision making, and thus could not think or perform cognitive tasks. However, looking forward, machines are already capable of some basic thought-related tasks and the decision making that goes with them (based on large datasets using machine learning).  If we continue on this current technological trajectory, “future machines will be able to carry out these human capabilities, at least in certain contexts and to a certain extent.” (Mokyr, Vickers, & Ziebarth, 2015, p. 42) This difference in technological capabilities can be partially explained by the differing levels of interconnectedness between technology and science between the Industrial and Technological Revolution. This linking of technology and science is crucial in the global and expeditious spread of effects from the Technological Revolution. Comparatively, the majority of the effects from the Industrial Revolution were not felt until the latter half of the 19th century, some thirty years after the initial technological innovations began. (Mokyr J. , 1997, p. 32) “For [these] reasons, it seems unlikely that the pattern of technological development during our own Industrial Revolution will look even remotely like its predecessors.” (Mokyr J. , 1997, p. 34)

 

Social

There are many different theories to explain the differences in unemployment caused by the Industrial and Technological Revolutions. Jeremy Greenwood and Mehmet Yorukoglu hypothesized that rapid technological change favors skilled workers and so during initial changes, there is an income inequality effect occurring as only the highly skilled workers are initially able to adapt. (Mokyr J. , 1997, p. 36) This explained the eventual employment shift in the Industrial Revolution, but fails to explain the increasing structural unemployment in the Technological Revolution.  Others, like Sir James Stuart, argue that technological unemployment only occurs in situations where the introduction of the innovation occurred quite rapidly. However he also argued that the disruption to the employment market would only be temporary, whereas the gains would be permanent. (Mokyr, Vickers, & Ziebarth, 2015, p. 33) Again, this can explain the effects of the Industrial Revolution, but fails to explain the Technological Revolution loss of jobs and a dangerous rising class disparity. Despite many economists arguing that even if rapid technological development caused short-run unemployment but long-run gains, there are some who argued that there were also negative long run consequences. However, most of these economists (such as George Fitzhugh or Thomas Roderick Dew ) saw technological adoption as a prisoner’s dilemma “in which each party would be foolish to pass on utilizing the newest advances even if the end result was to make everyone worse off.” (Mokyr, Vickers, & Ziebarth, 2015, p. 42) This perspective is perhaps helpful in describing the incentives behind modern technological advances, but gives us no prediction into the direction we are heading. Inductive reasoning used by economists today is failing to accurately predict the consequences of the Technological Revolution. This overwhelming difference in size, speed and spread of revolution effects makes it difficult to analyze the past to understand the current trajectory our global economic system is headed.

Capitalism to New Econ Paradigm

The Industrial Revolution saw an increase in social mobility, where class was determined by merit rather than the mercantilist hereditary determinism.  The shift from mercantilism to capitalism was relatively gradual, and though it did create stratified economic classes through exploitation, it also brought class-wide economic growth and prosperity. However, it is only possible through a contemporary bias to analyze how the technological forces at play would have resulted in the economic shift from mercantilism to capitalism. It is then possible to understand why it is so difficult to utilize inductive reasoning to predict the new economic school of thought that is emerging as the Technological Revolution thrives. Many theorists have proposed various solutions, one such example being Finland’s Minimum Income Policy. Ultimately, it is impossible to accurately predict the future paradigm, but it is fully possible to recognize that the global economy is on a similar trajectory towards change that was seen throughout the Industrial Revolution.

Conclusion

Looking to the past to predict the future is a useful skill used by a science restrained by a lack of real world experiments to formulate consistent models and theories. However, inductive reasoning for the purposes being examined by this paper, is constrained by the introduction of technological change in the 18th century. Technology creates lasting, seismic alterations in economic and social activity and structure. In such, the economic systems predating the Industrial Revolution are fundamentally different from that following the first technological revolution. (Mokyr J. , 1997, p. 32) The technological progress of the Industrial Revolution are small relative to the exponential effects of technology in the Technological Revolution. The Industrial Revolution machine labour generated frictional unemployment as workers moved from agricultural to manufacturing industries. There was a shift, not an eradication of jobs, and middle skilled workers were able to create a middle class. Unlike the Industrial Revolution which ultimately favoured unskilled workers, the Technological Revolution heavily favours those with related skills.  Moreover, the Industrial Revolution saw the poor exploited to benefit the wealthy, whereas the Technological Revolution idolizes technology at the expense of the poor and middle classes. This generates increasing income inequality effects, with a growing lower class, diminishing middle class, and a top-heavy upper middle class. The effects of technology in the Industrial Revolution were spread over 80 years and induced a slow transition from mercantilism to capitalism. The current consequences of the Technological Revolution are inducing rapid social changes with the prospect of a violent shift from capitalism to some new unknown economic school of thought.

 

 

 

 

 

 

 

 

 

 

 

 

 

Works Cited

Brynjolfsson, E., & McAfee, A. (2012). Race Against the Machine: How the Digital Revolution is Accelerating Innovation, Driving Productivity, and Irreversibly Transforming Employment and the Economy. Lexington, MA: Digital Frontier Press. Retrieved February 17, 2016

Lewis, T. (2015, January 12). Don’t Let Artificial Intelligence Take Over, Top Scientists Warn. Retrieved from livescience.com: http://www.livescience.com/49419-artificial-intelligence-dangers-letter.html

Majewski , J. (1986, July 01). The Industrial Revolution: Working Class Poverty or Prosperity? Foundation for Economic Education. Retrieved February 17, 2016, from http://fee.org/articles/the-industrial-revolution-working-class-poverty-or-prosperity/

Mokyr, J. (1997). Are We Living in the Middle of an Industrial Revolution? Federal Reserve Bank of Kansas City, 31-43. Retrieved February 17, 2016

Mokyr, J., Vickers, C., & Ziebarth, N. L. (2015, Summer). The History of Technological Anxiety and the Future of Economic Growth: Is this time different? Journal of Economic Perspectives, 29(3), 31-50.

Ricardo, D. (1821 [1971]). Principles of Political Economy. (R. H. Harmondsworth, Ed.) London: Pellican Classics.

 

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