Adopting Disruptive Technology is Challenging and Inevitable

Luddites, famous for smashing automated weaving machines because they threatened their jobs and livelihoods in the newly automating weaving industry in the 1800s had a point. Soon, 97% Of all handweaving jobs would be eliminated by the new automated machines they were smashing. History has drawn a different conclusion from this chaotic protest. The term “Luddite” now refers to those who irrationally reject technology. Even in the case of the Luddites, the net benefit of this advancement has proven to be quite clear. The weaving factories of England dominated the global industry and England became the world’s leading fabric manufacturer. Many more jobs were created than were lost via automation. This is because new jobs were needed to service this growing industry, systems and processes were needed to make the business much more efficient, tying together international supply chains and customer accounts. Wealth and economic benefit permeated the industry and those who participated.

Productivity, expansion, and entrepreneurship were enabled through the adoption of new technology. Undeniably, the net economic benefit was substantial. But lives were disrupted, jobs were lost, and what would be seen with a historical perspective as an obvious beneficial choice, was anything but obvious to those so immediately and negatively impacted.

Technological advancements produce net benefits for society. But for every advancement, there is a cost. While overall, there is a definite benefit, those who suffer losses magnify the turmoil and uncertainty that any new technology brings. Today, with the development and advancements in Artificial Intelligence, turmoil and uncertainty are met with the substantial cost and, yet, unsubstantiated returns from the significant capital investment required. While powerful tools representing the potential to enable efficiency and effectiveness in almost any industry, the true benefit and unsettling nature of automation create enhanced turmoil, potential regulation, and other counterbalancing forces. Undoubtedly, history will once again show these advanced technological tools will also advance broad and unforeseen opportunities, and be a net benefit to society, AI’s adoption will be anything but smooth and frictionless. Technology and turmoil are inseparable.

Recent AI advances have sparked much excitement about future prosperity and opportunity, but it has also sparked fear and anxiety about an uncertain future. Most people don’t feel particularly optimistic, even before the current pandemic. A 2017 Pew Research survey found that three-quarters of Americans expressed serious concerns about AI and automation, and most believe that their children will not be better off financially than they were as a result.

But, as we have seen with the Luddites (and many other examples), serious concerns about technology’s impact always accompany technological innovation. Many of the trends we see today, such as the disappearance of middle-income jobs, stagnant wages, and growing inequality, were also features of the Industrial Revolution. We may be at the brink of a technological revolution that promises not just to fundamentally alter the structure of our economy, but also to reshape the social fabric more broadly. Turmoil will accompany this rapid technological change, especially when technology threatens so many people’s jobs.

The pandemic has magnified the adoption of advanced tools, new forms of work, and collaboration that will likely accelerate the rate and pace of technological change. What can we learn from the Industrial Revolution that can help us better face our emerging AI revolution?

  • There’s a significant time lag between the broad acceptance of major new transformative technologies and their long-term economic and productivity growth.  This is particularly the case for broad and general-purpose technologies like the steam engine, electricity, or computers, each which radically reshaped entire economies and societal norms.
  • The life cycle of such historically transformative technologies consists of two phases:  investments and harvesting.
  • In their initial phase, transformative technologies require massive complementary investments, such as business process redesign, co-invention of new products and business models, training, re-skilling, and education of the workforce.
  • The more transformative the technologies, the longer it takes them to reach the harvesting phase. This is where the new technology is widely embraced by companies and industries across the economy.

The time lags between the investment and harvesting phases are typically quite long.

  • The steam engine, developed in the 1780s, was not powering most British factories until around 1840.
  • Productivity growth did not increase until 40 years after the introduction of electric power to factories in the early 1880s.
  • Computers, while first deployed in business in the 1950s and 1960s, were too bulky, expensive, and difficult to program to have any meaningful impact on jobs, wages and productivity until decades later.
    • Companies had to rethink their overall operations to take full advantage of the new digital technologies, as was the case with factory electrification – and will be with AI.

Productivity growth has slowed since 2005 but seen through this historical lens, it is not all that puzzling.

Despite the recent hype, we’re still in the early stages of AI’s deployment.  In its early stages, the extensive investments required to embrace a disruptive technology like AI will generally reduce productivity growth. As an example, a recent Brookings Institution report estimated that between 2014 and 2017 investments in autonomous vehicles amounted to roughly $80 billion with almost no returns, actually lowering labor productivity by 0.1% per year over this period. Yet, this potentially disruptive technology has the promise to enable tremendous efficiency, cost savings, and new business models in many aspects of transportation, logistics, and commerce.

An overlooked and critical point is that the short-run consequences of rapid technological change can be devastating for many working people, especially when technology is essentially capital substituting for labor. In the long run, the Industrial Revolution led to a rising standard of living, improved health, and many other benefits. Yet in the short run, the lives of working people got nastier, more brutish, and shorter. From their Ivory Tower, what economists regard as “the short run” can be a lifetime for some. It generally takes decades to realize the benefits of transformative technologies.

A 2017 McKinsey study concluded that while a growing technology-based economy will create a significant number of new occupations, as has always been the case in the past, “the transitions will be very challenging – matching or even exceeding the scale of shifts out of agriculture and manufacturing we have seen in the past.”

Industrial economies have seen a significant rise in wage inequality and the polarization of job opportunities based on education. The earnings of the most-educated are increasing, and the earnings of the least-educated are falling in real terms. Since the 1980s, the earnings of those with a four-year college degree have risen by 40% to 60%, while the earnings of those with a high school education or less have fallen.

Historically, people adjusted to technological change by acquiring new skills – education and training. During the twentieth century, the expansion of education was critical to helping people adjust to the accelerating pace of change. As we now see, these skills must also be regularly updated along with technology’s rapid progress.

Future technological development demands even greater skills and a depth of knowledge that is even more dependent on education and training. A significant portion of our society and entire social groups are likely to be excluded from this growth engine. Turmoil will result, as it always has, and our economic policies and societal values are inadequate to deal with this increasing turmoil.

Leadership and subsequent public policy must address this shortfall. As in the past, the solution has been training and education leading to economic inclusion and prosperous lives. History has taught us the net benefit of technological advancement, the turmoil it brings, and the solution required.

 

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