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Creative destruction at work

Jul 24,2014 - Last updated at Jul 24,2014

Throughout history, technological progress has created enormous wealth but also caused great disruption. The United States’ steel industry, for example, underwent a major transformation in the 1960s, when large, integrated steel mills were gradually put out of business by mini-mills, destroying the existing economic base of cities like Pittsburgh, Pennsylvania, and Youngstown, Ohio. The mini mills, however, vastly increased productivity, and created new types of work elsewhere.

The story of US steel illustrates an important lesson about what the economist Joseph Schumpeter called “creative destruction”: Long-run economic growth involves more than just increasing output in existing factories; it is also implies structural changes in employment.

We can observe a similar phenomenon in the current information and communications technology (ICT) revolution, which has affected most areas of the modern workplace, even those not directly associated with computer programming or software engineering. Computer technologies have created prosperous new businesses (even business clusters) while making certain manufacturing workers redundant and sending older manufacturing cities into decline.

But the likes of Detroit, Lille, or Leeds have not suffered because of falling manufacturing output; on the contrary, output has been growing in these cities over the past decade. Instead, their decline stems directly from their failure to attract different types of jobs. To a large extent, this is a failure of policy. Rather than trying to preserve the past by propping up old industries, officials should focus on managing the transition to new forms of work. This requires a better understanding of emerging technologies, and how they differ from those that they are supplanting.

An important feature of the Industrial Revolution’s early manufacturing technologies was that they replaced relatively skilled artisans, which in turn increased demand for unskilled factory workers. Similarly, Henry Ford’s assembly line for manufacturing cars — introduced in 1913 — was specifically designed for unskilled workers to operate machinery, thereby allowing the company to produce its popular Model T — the first car that middle-class Americans could afford.

Indeed, much of the story of industrial development over the last century can be seen in terms of competition between an increasingly educated workforce and new technology that would dispense with their skills. We have already seen the impact — not least in the car industry — of robots that can carry out the routine jobs that were once performed by thousands of middle-income assembly-line workers.

Even greater workplace disruption lies ahead. Though history counsels caution in predicting how technological progress will play out, we already have a reasonable idea of what computers will be able to do in the near future, because the technologies are already being developed. We know, for example, that a wide range of skilled professions can be simplified with the help of “big data” and sophisticated algorithms.

One frequently cited example of this process is the Symantec Clearwell eDiscovery platform, which uses language analysis to identify general concepts in documents, and boasts of analysing and sorting more than 570,000 documents in just two days. Clearwell is transforming the legal profession by using computers to assist in pre-trial research and perform tasks normally undertaken by paralegals — and even by contract or patent lawyers.

In the same way, improved sensory technology means that many transportation and logistics jobs will soon be fully automated. And it is not far-fetched to imagine the likes of Google’s self-driving cars making bus and taxi drivers redundant one day. Even hitherto secure, low-skilled service occupations may not escape automation. Demand for personal and household service robots, for example, is already growing by about 20 per cent annually.

Labour markets may once again be entering a new era of technological turbulence and widening wage inequality. And this highlights a larger question: Where will new types of work be created? There are already signs of what the future holds. Technological progress is generating demand for big data architects and analysts, cloud services specialists, software developers, and digital marketing professionals — occupations that barely existed just five years ago.

Finland offers valuable lessons in how cities and countries should adapt to these developments. Its economy initially suffered from the failure of its biggest company, Nokia, to adapt to smartphone technologies. Yet several Finnish start-ups have since built new enterprises on smartphone platforms. Indeed, by 2011, former Nokia staff had created 220 such businesses, and Rovio, which has sold more than 12 million copies of its smartphone-based video game, “Angry Birds,” is crowded with former Nokia employees.

This transformation is no coincidence. Finland’s intensive investment in education has created a resilient labour force. By investing in transferable skills that are not limited to specific businesses or industries, or susceptible to computerisation, Finland has provided a blueprint for how to adapt to technological upheaval.

Despite the diffusion of big-data-driven technologies, research suggests that labour will continue to have a comparative advantage in social intelligence and creativity. Government development strategies should therefore focus on enhancing these skills, so that they complement, rather than compete with, computer technologies. 


The writer is a research fellow at the Oxford Martin School, University of Oxford, and Doctor of Economic History at Lund University. ©Project Syndicate, 2014.

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