Race Against the Machine

America is in the midst of a jobs crisis. The latest data show 103,000 jobs added in September; roughly half what is needed to keep pace with population growth. But previous months had seen no increase whatsoever, so even this paltry rise was greeted with relief.

Unemployment is to be expected after a recession. Yet when Barack Obama first pushed his stimulus package, the US president warned darkly what would happen without it: joblessness would exceed 9 per cent in 2009, before falling back. Today, the rate is stuck at 9.1 per cent; still on a par with the do-nothing worst-case scenario predicted two years ago.

Why has it stayed so high for so long? Some economists point to weak demand. Others note credit-starved companies shedding jobs to pep up profits. Yet this does not explain an unusual pattern seen in US and European labour markets after the financial crisis: strong corporate earnings and robust investment in capital equipment, but miserly hiring rates.

Erik Brynjolfsson and Andrew ­McAfee, two economists at the Massachusetts Institute of Technology, make a powerful case that a different villain is to blame: technology. Their essay is interesting as part of a trend for speedily produced ebooks on urgent economic issues, and it contains more insight in its 60 pages than many books three times the length. But it is compelling for its claim to explain two crumbling economic laws: the first that growth will create jobs; the second that rising wages will follow rising productivity.

The authors think this stems from the erosion of a third pattern – that technology creates at least as many jobs as it destroys. Many intuitively doubt this idea, as the looms long ago smashed by Ned Ludd attest. John Maynard Keynes even coined the term “technological unemployment” in 1930 for the long-term process by which machines would replace workers.

Yet, as the authors admit, the evidence is irrefutable: until now technology has been a net plus for jobs. Given this, the onus is on them to prove that this time really is different. The crux of their case lies in the fact that machines are increasingly able to perform tasks in which humans were once unquestioned masters.

Computers now exhibit human-like capabilities not just in games such as chess, but also in complex communication such as linguistic translation and speech. These new abilities stem from “pattern recognition” technologies – the same techniques that underpin, for example, the Siri voice recognition tool in Apple’s iPhone 4S.

Pattern recognition, the authors think, will quickly allow machines to branch out further. Computers will soon drive more safely than humans, a fact Google has demonstrated by allowing one to take out a Toyota Prius for a 1,000-mile spin. Truck and taxi drivers should be worried – but then so should medical professionals, lawyers and accountants; all of their jobs are at risk too.

The outcome is a nightmarish but worryingly convincing vision of a future in which an ever-decreasing circle of professions is immune from robotic encirclement. But while this book is a brisk must-read for anyone trying to grapple with the dilemmas of capitalism beyond the credit crunch, it is not without flaws – the most important being the way its technological focus underplays other factors, especially globalisation.

That the pace of technological change has sped up in recent years is only arguable. But there is no doubt that the entry of China, in particular, into the world economy has sent shockwaves through global supply chains, creating huge competitive pressures on western businesses and the people they employ. If the US and Europe face a jobs crisis, this is a big part of the reason why.

Yet the author’s more basic conclusion – that technological progress is sufficiently rapid that “many present-day organisations, institutions, policies, and mindsets are not keeping up” – is surely right. The result is a conundrum that shares much in common with trade policy. Technology is essential for creating value and raising productivity, but it creates losers as well as winners. These losers are recognised in theory, but too rarely compensated in practice.

This brings the argument back to a more basic problem: fair distribution. Machines work for free, but their benefits end up in someone’s pocket. If technology is indeed speeding up, more of that benefit must be returned to those it affects, especially in the form of investment in human capital. If not, the march of the machines will overtake us sooner than we think.

The writer is the FT’s Mumbai correspondent

Race Against the Machine: How the digital revolution is accelerating innovation, driving productivity, and irreversibly transforming employment and the economy, by Erik Brynjolfsson and Andrew McAfee Digital Frontier Press

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