Home > Poslovno svetovanje > Daron Acemoglu, Simon Johnson: Power and Progress; Our thousand-year struggle over technology and prosperity

Daron Acemoglu, Simon Johnson: Power and Progress; Our thousand-year struggle over technology and prosperity

Power and progress

What Is Progress

As world, we have become infused with techno-optimism.

To Jeremy Bentham, it was self-evident that technology improvements enabled better functioning schools, factories, prisons, and hospitals, and this was beneficial for everyone. New technologies, according to this view of the world, expand human capabilities and, when applied throughout the economy, greatly increase efficiency and productivity. Adam Smith and Edmund Burke had similar views.

We are beneficiaries of progress, mainly because our predecessors made that progress work for more people.

A new, more inclusive version of technology can emerge only if the basis of social power changes.

Control over Technology

The word technology comes from the Greek tekhne (skilled craft) and legis (speaking or telling), implying systematic study of a technique.

In 1930 John Maynard Keynes coined a term “technological unemployment”. He was not the first to voice such fears. David Ricardo was also concerned.

H.G. Wells wrote in his The Time Machine, about a future dystopia where technology had so segregated people that they evolved into two separate species.

Three foundational questions:

  • What determines when new machines and production techniques increase wages?
  • What would it take to redirect technology toward building a better future?
  • Why is current thinking among tech entrepreneurs and visionaries pushing in a different, more worrying direction, especially with the new enthusiasm around artificial intelligence?

Optimism regarding shared benefits from technological progress is founded on a simple and powerful idea: the “productivity badwagon”. The theory behind the productivity badwagon is straightforward: when businesses become more productive, they want to expand their outputs. For this, they need more workers, so they get busy with hiring. And when many firms attempt to do so at the same time, they collectively bid up wages.

What matters to companies is marginal productivity – the additional contribution that one more worker brings by increasing production or by serving more customers.

“The factory of the future will have only two employees, a man and a dog. The man will be there to feed the dog. The dog will be there to keep the man from touching the equipment.”

Automation raises average productivity but does not increase, and in fact may reduce, worker marginal productivity.

Automation and offshoring have raised productivity and multiplied corporate profits.

More important for raising workers marginal productivity is the creation of new tasks.

There will be few new jobs created, however, when the productivity gains from automation are small – what we call “so-so automation”. There is no productivity bandwagon from so-so automation and worker surveillance.

Ricardo and Keynes correctly understood that productivity growth does not necessarily automatically deliver broad-based prosperity. Outcomes depend on economic, social and political choices.

Digital technologies already changed science. How we use knowledge and science depends on vision – the way that humans understand how they can turn knowledge into techniques and methods targeted at solving specific problems. Vision shapes our choices. And power defines whose vision will prevail.

Although general-purpose technologies can be developed in many different ways, once shared vision locks in a specific direction, it becomes difficult for people to break out of its hold and explore different trajectories that might be socially more beneficial. Most people affected by those decisions are not consulted.

Shared prosperity is more likely when countervailing powers hold entrepreneurs and technology leaders accountable – and push production methods and innovation in a more worker-friendly direction.

Early human life was transformed by fire. Is AI next big thing with fire-like impact?

AI appears set on a trajectory that will multiply inequalities, not just in industrialized countries but everywhere around the world. Fueled by massive data collection by tech companies and authoritarian governments, it is stifling democracy and strengthening autocracy.

What we are witnessing today is based on shared vision among the most powerful technology leaders. This vision is focused on automation, surveillance, and mass-scale data collection, undermining shared prosperity and weakening democracies.

A cautionary tale for any history of technology: great disasters often have its roots in powerful visions, which in turn are based on past success.

Canal vision

Ferdinand de Lesseps, the builder of Suez canal, was also working on securing a bid for Panama canal. He was guided by three strongly held tenets:

  • A nineteenth-century version of technology optimism.
  • A belief in markets, that even the largest projects could be financed with private capital.
  • He was focused on European priorities and non-Europeans mattered little.

To understand Lesseps’s vision, we must turn to the ideas of the French social reformer Henri de Saint-Simon. He maintained that human progress is driven by scientific invention and the application of new ideas to industry. It was a group of smart young engineers from Ecole Polytechnique around Barthelemy Prosper Enfantin that brought his ideas to life. Mainly in the field of canals and railways.

Lesseps met Enfantin and read about idea of canal between the Red Sea and the Mediterranean.

In 1848 Mahammed Said, the fourth son of Mahammed Ali, became the ruler of Egypt. In 1854 Lesseps went to Egypt. He received concession for building a canal. By early 1857, he had a well-honed pitch about how canal would reduce travel time and transform global commerce. In 1858 he sold stocks and get the financing for the canal.

Visionaries derive their power partly from the blinders that they have on – including the suffering that they ignore.

By the time the canal opened in November 1869, French industry led the world in its ability to move earth even in the most difficult conditions.

Strategically, the canal was transformational, strengthening the grip of European commerce on the world.

The idea of a canal across Central America had long been a European dream, dating back at least to 1513. The Spanish government tried something in 1819, but the canal was back on agenda in 1879. An American group strongly preferred a route through Nicaragua. The alternative route was through Panama, and for this location the supposed parallels with Suez appealed to Lesseps. In 1878 Lesseps’s agent received a concession from the government of Colombia, which controlled the relevant territory at that time.

In December 1880 Lesseps’s company issued shares. But the canal needed at least four or five times as much capital as was raised in this first round. From 1881 to 1889 a lot of people died due to diseases. People building a canal. Lesseps changed his approach from sea-level canal to the lock-based canal in 1887. But the canal was not built by Lesseps but by Americans in 1904.

What you do with technology depends on the direction of progress you are trying to chart and what your regard as an acceptable cost. Technology is nothing without vision. But vision also implies distorted lenses, limiting what people can see.

Power to Persuade

Power is about the ability of an individual or group to achieve explicit or implicit objectives. Modern society turns on persuasion power.

Like coercion and political power, economic power also relies being able to persuade others.

The two sources of persuasion are: the power of ideas and agenda setting. An idea is more likely to spread if it is simple, is backed by a nice story, and has a ring of truth to it.

Even charisma depends on institutions and conditions. It is not just something you are born with; it depends on self-confidence and on your social networks.

The marketplace for ideas is an imperfect frame for technology choices, which are at the heart of this book. To many people, the word market implies a level playing field in which different ideas try to outcompete each other primarily on their merits. This is not how it happens most of the time.

Whoever asks the questions, sets the priorities, and rules options in and out has formidable powers to frame public discussion and convince others. We think through coarse categories and sometimes make false generalizations. When it comes to complex choices, we tend to consider only a few options.

For an idea to be successful you need to articulate a broader viewpoint that transcends your interests or, at least, appears to do so. Once you have a set of ideas you believe in, these concepts shape the way you look at facts and weigh different tradeoffs.

The rules of the game matter greatly as well, and they can amplify or limit inequality in the power to persuade.

Economic and political institutions shape who has the best opportunities to persuade others. The rules of the political system determine who is fully represented and who has political power. Economic institutions influence who has the resources and the economic networks to mobilize support and, when necessary, pay politicians and journalists.

Lord Acton in 1887: “Power tends to corrupt and absolute power corrupts absolutely.”[1]

Social power matters in every aspect of our lives. Often, it is those whose vision dominates the trajectory of innovation who benefit most

We need to reshape the future by creating countervailing forces, particularly by ensuring that there is a diverse set of voices, interests, and perspectives as a counterweight to the dominant vision. It is about the pressure that ordinary people can put on elites and visionaries, and it is about willingness to have their own opinions rather than be entrapped by dominant visions.

Progress has a way of leaving many people behind unless its direction is charted in a more inclusive way.

Cultivating Misery

Perhaps the most defining technology of the Middle Ages was the mill, whose rising importance is well illustrated by the English experience after the Norman Conquest of 1066.

From 1000 to 1300, water mills and windmills and other advances in agricultural technology roughly doubled yields per hectare. For most people, better agricultural technology during the Middle Ages deepened their poverty.

Most of the surplus was eaten up not by urban centers but by the large religious hierarchy. The church’s construction boom was truly spectacular. Estimates from France suggest that as much as 20 percent of total output may have been spent on religious building construction between 1100 and 1250.

Medieval society is often described as a “society of orders”. Those who prayed were crucial in persuading those who labored to accept the hierarchy.

After the mills were introduced in medieval England. As new machines were deployed and productivity rose, feudal lords exploited the peasantry more intensively.

The higher wages in medieval times rose after the Black Death, when lords were facing a shortage of labor and untilled fields.

Just as in the medieval period, technological and organizational choices in early civilizations favored the elite and impoverished most people.

By the mid-1700s, English agriculture had changed a great deal. Serfdom and most of the vestiges of feudalism had faded away. Henry VIII had dissolved the monasteries and sold off their land in the mid-1500s.  The process of agricultural transformation had been ongoing for centuries. From around 1600, we see real wages creeping upward more steadily.

In 1773 Parliament passed the Enclosure Act, making it easier for large landowners to push through the reorganization of land they desired. Arthur Young had a distinctive voice in these arguments. The history of the enclosure movement is a granular illustration of the way that persuasion and economic self-interest shape who benefits from technological change and who does not.

Eli Whitney invented improved cotton gin in 1793. Cotton production in America South increased dramatically. Improved productivity most definitely did not mean higher wages or better treatment of Black workers.

The doctrine of “positive good” was made famous by James Henry Hammond. Slavery was a southern issue, in which others should not interfere. It was essential to the prosperity of White people.

In Russia Stalin pushed for collectivization and that caused death of many.

Whether the elite were feudal lords in medieval Europe, plantation owners in the US, or Communist Party bosses in Russia, technology was socially biased, and its application in the name of progress left devastation on its way.

The first phase of industrialization was even more biased and created more inequalities than agricultural modernization.

A Middling Sort of Revolution

The steam engine allowed a leap forward in human control over nature.

The modern demographic history of our species can be divided into three phases:

  • The first is gradual population increase from about 100 million in 400 BC to 610 million in 1700 BC.
  • The second phase witnessed an acceleration with world population increasing to 900 million in 1800.
  • The third phased, started already in 1820, brought increase in output per person more than doubling in the following century across Western Europe.

It was cooperation of science and industry that propel industrialization. In England Daniel Defoe called this Projecting Age. And it was embodied of new class of entrepreneurs and inventors. George Stephenson was one of them.

Stephenson’s view, that steam engines with metal wheels would easily generate enough traction on iron rails, was quite different from the established wisdom.

Stephenson and his success epitomize what happened with railways and more broadly across other sectors. Practical men, born to scant resources, were able to propose, fund, and implement useful innovations. Railways revolutionize transport.

This was time when upward mobility was possible even for middling sort.

Scientific advances, by themselves, cannot explain why the Industrial Revolution was British. It was a thoroughly pan-Europe affair. Not to mention China and its development.

What sets apart Britain from its peers was the outcome of a long process of social change that had created a nation of upstarts. By the mid-nineteenth century; tens of thousands of middle-status Britons had formed the idea that they could rise substantially above their station through entrepreneurship and command of technologies.

But all these changes started already with Magna Carta, then Henrik VIII who cut down majority of medieval institutions. Elizabeta continued with his work. Constant fight for power between the parliament and king (Civil War 1642-1651) and the social movements like the Levellers are also signs of these changes. Not to mention The Glorious Revolution in 1688.

If you wanted to move up socially, you needed to acquire wealth. Conversely, if you could acquire wealth, there was no limit of how high you could rise. And wealth was not tied just to land ownership.

But in eighteenth-century and early nineteenth Britain the working poor had no political representation.

Casualties of Progress

The 1842 Report from the Royal Commission of Inquiry into Children’s Employment was a shocker.

It became increasingly evident to the Victorians that although industrialization had made some people very rich, most workers lived shorter, less healthy, and more brutal lives than had been the case before industry began to develop.

Jan De Vries pointed out that the Industrial Revolution was very much an “industrious revolution”, in the sense that first the British, and then everyone else, began to work much harder.

When employers are powerful and labor is not, productivity gains are not shared with workers – and profits are higher.

Longer and less autonomous working days and stagnant real incomes were not the only fallout from early industrialization. The social bias of technology also had a broader impoverishing effect. Industrialization also brought a great deal of pollution. Pollution and infectious diseases created deadly threat for city dwellers.

In the second phase of industrialization in the second half of the nineteenth century, wages started growing steadily and working conditions also improve. Public health improved dramatically as well.

The productivity bandwagon needs two preconditions to operate: improvements in worker marginal productivity and sufficient bargaining power for labor.

Something else (on top of British industry productivity improvements) helped move to shared prosperity: new innovation from the other side of the Atlantic. The US was abundant in land and capital, but scarce in labor, especially skilled labor.

Eli Whitney’s focus on interchangeable parts, which strove to build standard pieces that could be combined in different ways, making it easier for unskilled workers to produce guns. Whitney aimed at building a “systems approach” combining specialized machinery and labor to increase efficiency.

As industry expanded, firms competed for market share and for workers. Workers began to obtain higher wages through collective bargaining. That was the culmination of a long process that had started at the beginning of the century and reached fruition only in 1871, when trade unions became fully legal.

Countries made different choices on how to use the available technological know-how, with very distinct implications.

The Contested Path

The first WW, the time between and the second WW were hard times for Europe. It was after 1945 when next thirty years were called the glorious years. This growth had two critical building blocks: the direction of travel for new technology that generated not just cost savings through automation but also plenty new tasks, products, and opportunities; and institutional structure that bolstered countervailing powers from workers and government regulation.

The American path of technology strove to raise productivity to make better use of labor that was relatively in short supply. Between 1850 and 1910 the share of labor in value added in manufacturing and services increased from 46 to 53 percent.

Two interrelated changes intensified productivity and transformed American industry: electricity and the greater use of information, engineering, and planning in the production process. Electricity is particularly important because it is general purpose technology. The new communication devices made possible by electricity. With better communications, logistic and planning improved.

With the advent of electricity, factories became much more productive. Even more important was the reorganization of the factory thanks to flexible sequencing of machinery. Each equipment could now have its own, dedicated local power source.

The reorganization of manufacturing enabled by white-collar workers created relatively high-paying jobs for blue-collar workers.

The American path of technology build new systems and machinery, increasing efficiency and in the process augmenting the capabilities of both skilled and unskilled labor.

An important source of productivity gains was training. The link between advanced machinery and new skills training as a foundation for creating novel opportunities and increased demand for workers would turn out to be critical in the postwar era as well.

Welfare capitalism started to get some traction only after Great Depression, and initially far away from US.

Before 1920 Sweden was predominantly agricultural. Swedish Social Democratic Workers’ Party (SAP) started to campaign for a robust policy response (to depression) that had both a macroeconomic leg (greater government spending, higher wages in industry to prop up demand, and expansionary monetary policy by leaving the gold standard) and an institutional leg (providing foundations for consistent sharing of profits between labor and capital, redistribution via taxation, and social insurance programs).

In a famous meeting in the resort town of Saltsjobaden in 1938, a deal was struck with a significant fraction of business community, agreeing on the basic ingredients of the Scandinavian social democratic system. The most important elements were industry-level wage setting, ensuring that profits and outputs increases were shared with workers, and significant expansion of redistributive and social insurance programs, along with government regulations.

In US FDR administration was responsible for minimal wages and Wagner Act of 1935, which recognized the right of workers to collectively organize.

Inequality fell rapidly during and after WW II.

Demand for workers of all different skills continued to increase throughout the 1950s, 1960s, and early 1970s. in essence, technologies of the era created as many opportunities for workers as the ones they displaced. US education also expanded due to new skills demand.

In Europe countries suffered from the war. But this was also time when state-run insurance programs were created, that protected people from “cradle to grave”. Japan also created one.

Digital Damage

The beginnings of the computer revolution can be found on the ninth floor of MIT’s Tech Square building in 1959-60.

Digital technologies became the graveyard of shared prosperity. Wage growth slowed down, the labor share of national income declined sharply, and wage inequality surged starting around 1980. Digital technologies automated work and disadvantaged labor vis-à-vis capital and lower-skilled workers vis-à-vis those with college or postgraduate degrees.

Throughout most of the twentieth century, about 67-70 percent of national income went to workers, and the rest went to capital. By 2019, labor’s share of national income had dropped to under 60 percent. In Germany it dropped from 70 in 1980 to around 60 percent in 2015.

Shared prosperity was not destroyed by automation per se, but by an unbalanced technology portfolio prioritizing automation and ignoring the creation of new tasks for workers.

Technology does not have a preordained direction, and nothing about it is inevitable.

By the 1980s, the view that what was good for business, or even large corporations, was good for the country had become commonplace. Ronald Reagan created term “trickle-down economics”.

The idea that unregulated markets work in the interest of the nation and the common good became the basis for a new approach to public policy. George Stigler and Milton Friedman economic views were based on Hayek’s, but they went even further. We can talk about shareholder value revolution and profit as main goal of business.

The implications of the rapid growth of big businesses are wide-ranging. They are now enjoying greater market power, which they are exercising both to thwart innovation from rivals and to enrich their top executives and shareholders. They also spell trouble for the productivity bandwagon because they reduce competition for workers. They powerfully multiply inequality at the top by enriching their already-wealthy shareholders.

In 1947 Taft-Hartley Act weakened some of the pro-union provisions of the Wagner Act.

The transformation from the hacker ethic to corporate digital utopia was largely about following the money and social power. An elitist approach came to dominate almost the entire industry.

In 1987, Nobel Prize winner Robert Solow wrote: “You can see the computer age everywhere but in the productivity statistic.”[2]

The bias of technology was very much a choice – and a socially constructed one.

Artificial Struggle

Whatever the exact definition of modern machine intelligence, it is clear that new digital algorithms are being applied widely to every domain of our lives.

To be automated by traditional software, a task needs to be “routine”, meaning that it must involve predictable steps that are implemented in a defined sequence. Routine tasks are performed repetitively, embedded in a predictable environment.

The ambition of AI is to expand automation to nonroutine tasks.

Instead of fixating on machine intelligence, we should ask how useful machines are to people, which is how we define machine usefulness (MU). Focusing on MU would guide us toward a more socially beneficial trajectory, especially for workers and citizens.

Many of the productive tasks performed by humans are a mixture of routine and more complex activities that involve social communication, problem solving, flexibility, and creativity. In such activities, humans draw on tacit knowledge and expertise.

Tasks that involve social and situational aspects of human cognition will continue to pose formidable challenges for machine intelligence.

Industry’s focus continues to be on extensive data collection and the automation of narrow tasks based on machine-learning techniques.

Monitoring enables employers to cut wages and get more work out of the workers.

We can distinguish four related but distinct ways in which digital technologies can be steered in the direction of MU, helping and empowering humans:

  • First, machines and algorithms can increase worker productivity in tasks they are already performing.
  • The second type of MU is even more important, the creation of new tasks for workers.
  • The third contribution of machines to human capabilities may be even more relevant in the near future. Decision making is almost always constrained by accurate information. Filtering and the provision of useful information could be supported by machines.
  • Fourth, digital technologies can create new platforms and markets.

The way in which even the most promising applications of human-machine complementarity are used is still dependent on market incentives, the vision and priorities of tech leaders, and countervailing powers.

We were already on our way to a two-tiered society long before the 2010s. With a heightened AI illusion, we are seeing this process accelerate.

Democracy Breaks

China has implemented prototypes of the social credit system from 2017.

Digital censorship and propaganda meant that nationalism, unquestioning support for the government, and unwillingness to listen to critical news and opinions had become much more widespread among Chinese youths.

The use of digital tools to suppress dissent is not unique to China. Iran and Russia, among other dictatorships, have also used them to track and punish dissenters and stifle access to free information.

Democracy dies in darkness. But is also struggles under the light provided by modern AI.

Data on the universe of AI start-ups in China show that government demand for monitoring technologies fundamentally transforms subsequent innovation. There is one aspect in which China has an advantage: data. Chinese researchers work with much larger quantities of data and without the privacy restrictions that often limit the type of data Western researchers can access.

AI-powered social media’s current path appears almost as pernicious for democracy and human rights as top-down internet censorship.

Targeting revolutionized digital advertising, but as with many revolutions, there would be plenty of collateral damage. Google soon accelerated its data collection by offering a range of sophisticated free products, such as Gmail and Google Maps. Not to mention YouTube.

The notion of the “public sphere” proposed by the German philosopher Jurgen Habermas, captures some of the essential features of healthy democratic discourse. Habermas argued that the public sphere, defined as forums where individuals form new associations and discuss social issues and policy, is pivotal for democratic politics.

Imposing massive surveillance and data collection is not the only path of technological advance and limiting it does not mean banning technology. It was a matter of choice – choice by tech companies, AI researchers, and governments – that got us into our current predicament.

Social media platforms can work with and make money from a subscription model as well.

Redirecting Technology

The Gilded Age of the late nineteenth century was a period of rapid technological change and alarming inequalities in America, like today. Massive “trusts” and “the robber barons” were the main actors in that age. The US today would be a very different place if the economic and social conditions of the Gilded Age had endured. But a broad Progressive movement formed to oppose the trusts’ power and demand institutional change.

Progressivism was a bottom-up movement, full of diverse set of voices. They were responsible for the Sherman Antitrust Act in 1890 and the Tilman Act in 1907, that ban corporate contributions to federal candidates.

The Progressive movement provides a historical perspective on the three prongs of a critical formula necessary for escaping our current predicament.

  • The first is altering the narrative and changing norms.
  • The second is cultivating countervailing powers.
  • The third prong is policy solutions.

Fossil-fuel emissions are first and foremost a technology problem. The three policy levers (carbon taxes, research subsidies and regulations), together with pressure from consumers and civil society, led to a boost both in innovations in renewables and much larger levels of production of solar panels and wind energy.

Debates on new technology ought to center not just on the brilliance of new products and algorithms but also on whether they are working for the people or against the people.

What is needed is the right institutional framework and incentives shaped by government policies, bolstered by a constructive narrative, to induce the private sector to move away from excessive automation and surveillance, and toward more worker-friendly technologies.

We cannot redirect technology without building new countervailing powers. We need strong worker organizations and more civil-society action (alone and together).

Collective action requires a large group of people acting together to achieve an objective. But there is always a free-rider dilemma.

Some complementary policies could include subsidies and support for more worker-friendly technologies, tax reform, worker-training programs, data-ownership and data-protection schemes, breaking up tech giants, and digital advertisement taxes. They can help initiate a major redirection of technology.

The current tax system of many industrialized economies encourages automation. So maybe we need to change it.

Instead of picking winners, redirecting technology is much more about identifying classes of technologies that have more socially beneficial consequences. Other policies that are not directly connected with technology redirection, but can be useful are wealth taxes and redistribution and strengthening the Social Safety Net. If more money is invested through education system independently of big corporate money, for better technologies, this could improve innovation of more human oriented technology.

[1] In the book on page 89

[2] In the book on page 291

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