Tuesday, February 26, 2013

Technology, the Economy and Pool Cleaning. By Chrystia Freeland.

Technology, the economy and pool cleaning. By Chrystia Freeland. Reuters, February 21, 2013.

Book review: “The Future: Six Drivers of Global Change” by Al Gore. By Chrystia Freeland. Washington Post, February 22, 2013.

Freeland, Technology . . .:

One way to divide people is into foxes and hedgehogs. Another is into those who think this time is different and those who believe there is never anything new under the sun.

The latter split can be a matter of temperament, of politics or even of religion. But today it is relevant for another, more urgent reason: It describes how people think about the most critical economic problem in the industrialized world today — the dearth of well- paying middle-class jobs.

The this-time-is-different school attributes a lot of what is happening to the technology revolution. That makes them an intellectually eclectic bunch. On one hand, they include wide-eyed enthusiasts who believe in human progress and in the transformational power of technology. But they also include grim hand-wringers who fear the unprecedented changes may bring unprecedented woes.

That combination of Pollyanna and Cassandra is perfectly embodied in the multifaceted mind of Al Gore. Gore is a longtime fan of the geeks, and in his post-political life he has very nearly become one of them, with his seat on the Apple board and senior partnership with Kleiner Perkins Caufield & Byers, a leading venture capital firm in Silicon Valley.

It thus comes as no surprise that in his new book, “The Future,” Gore foresees a world of “hyper-change” in which the technology revolution is “carrying us with it at a speed beyond our imagining toward ever newer technologically shaped realities that often appear, in the words of Arthur C. Clarke, ‘indistinguishable from magic.’”

But Gore has also always been part Savonarola — remember the campaign of his estranged wife, Tipper, against music with “profane language” — and his conviction that this time is different has a sharp edge. In “The Future,” Gore admits that the Luddites, who feared that the Industrial Revolution would create structural unemployment, were wrong: “The new jobs that emerged in factories not only outnumbered those lost on farms but produced higher incomes, even as farms became far more productive and food prices sharply declined.”

Yet he warns that there is no guarantee history will repeat itself. In particular, Gore worries that thanks to the technology revolution, the traditional link between rising productivity and a rising standard of living for the middle class has been broken. He fears that severed link may be causing the economic slowdown in the developed economies: A weakened middle class lacks the spending power to drive growth.

One of the smartest academics studying this phenomenon is Erik Brynjolfsson, a management professor at the Massachusetts Institute of Technology. Brynjolfsson, who co-wrote the new book “Race Against the Machine,” also believes the technology revolution is having a powerful and unprecedented impact.

“Most of the debate in Washington is really playing small ball and is missing the tectonic changes in the way the economy works, which are driven by technology,” he said recently. “This is the big story of our time, and it is going to accelerate over the next 10 years.”

Like Gore, Brynjolfsson thinks the canary in the coal mine is the decoupling of gains in productivity and in wages. “Productivity since 2000 has grown faster than in the ’70s, ’80s or ’90s,” he said. “But starting in the late 1990s, we’ve had this decoupling of wages from productivity.”

Brynjolfsson believes this break is a historic watershed. “There have been big economic changes in the past, but productivity and jobs tracked each other pretty closely,” he said. “It is only since 1997 that they decoupled. There is no economic law that says they go together.”

That is a change with tremendous social and political implications. As Brynjolfsson put it: “A lot of economists felt that as long as productivity was growing, things would take care of themselves. That’s no longer true.”

This is indeed a watershed moment: Productivity and innovation, the focus of policymakers and business leaders, no longer guarantee widely shared prosperity. “Digital technologies are different in that they allow people with skills to replicate their talents to serve billions,” Mr. Brynjolfsson said. “There is really a drastic winner-take-all effect because every industry is becoming like the software industry.”

Classical economic theory isn’t entirely wrong. The danger isn’t — as it was easy to fear during the depths of the financial crisis — structural unemployment. The problem is what kind of jobs, at what kind of salaries, the shiny new technologically powered economy of the future will generate.

Lawrence H. Summers, the Harvard professor and former Treasury secretary, has a vivid way of describing the dystopian possibility. “As economists like to explain, the system will equilibrate at full employment,” Summers said in a public interview at the World Economic Forum in Davos, Switzerland, last month. “But maybe the way it will equilibrate at full employment is there’ll be specialists at cleaning the shallow end and the deep end of rich people’s swimming pools. And that’s a problematic way for society to function.”

This is a personal problem — who wants to prepare their children for a life of deep- and shallow-end cleaning? It is also a political one. As Brynjolfsson points out, the technology revolution also has winners. The share they reap from the increase in productivity is greater than ever, and they might quite like a world of specialists in various depths of pool cleaning.