Limits of technological innovations

Print edition : April 29, 2016

The New York skyline. The U.S. used to be a beacon of prosperity. But the forces of globalisation brought its growth to a grinding halt. Photo: Mohammed Yousuf

The book takes into consideration the impact of innovations on social life in the U.S. But not much attention is given to the qualitative changes that have taken place in rural and suburban lifestyles and in employment patterns over the last two decades.

“Life and work were risky, dull, tedious, dangerous and often either too hot or too cold,” writes Robert J. Gordon about 18th century America in his book The Rise and Fall of American Growth. In the last decades of the 18th century, women had to lug water from considerable distances for their daily washing and cooking. Before the invention of washing machines and dryers, according to a reliable study carried out in 1886, “washing, boiling and rinsing a single load of laundry used about 5o gallons of water”.

Then the explosion in technology-driven growth changed all aspects of life.

Gordon, an eminent macroeconomist, has given a comprehensive overview of economic growth, while making a comparative study between the impact of advancing automation technology and the growth of real wages and living standards over two significant historical periods—1870 to 1940 and 1940 to 1970.

Identifying the innovations in lifestyle from steam-powered trains to central heating, and from electrification to the internal combustion engine, he argues that the New Deal labour policies resulted in the fast rise of real wages when compared with production, which resulted in material advancement in the middle of the last century. Freedom from household drudgery, improved life expectancy and connectivity would dramatically change the lifestyles of people. In 1870, there were no homes with electricity, indoor plumbing or central heating. By 1940, however, about 40 per cent of homes had installed central heating, 60 per cent indoor flush toilets, 70 per cent had running water and 80 per cent had electricity. Cars, planes, the combustion engine, refrigerators, washing machines and the television expanded urban development, ushering in the second industrial revolution with its emphasis on Henry Ford’s innovation of the conveyor belt. As Gordon writes in the introduction: “Our central thesis is that some inventions are more important than others, and that the revolutionary century after the Civil War was made possible by a unique clustering, in the late 19th century, of what we will call the ‘Great Inventions’.”

Although it was commonly believed that invention and innovation would usher in rapid economic growth and improved living standards, this happened only between 1870 and 1970. Before and after, there would be very sluggish economic growth and changes in living standards. The leap forward that was to go on until 1970 was a result of the significant reforms that took place during the New Deal. However, Gordon is of the view that post-1970, the American economy entered the stage of stagnation with no broad-based technological innovations left to facilitate economic growth. Because “these inventions cannot be repeated, in the decades that followed, growth also would not be the same as it was in the past”.

Interestingly, new technologies of the last few decades, in Gordon’s view, will not spark any noticeable economic growth since living standards will plateau in contemporary times. The reason he gives is that “cognitive human labour has been substituted by information technology in the years that followed. Economic growth essentially reflects two factors: the size and productivity of the labour force. The special century’s impact peaked in the first quarter-century after World War II, when annual productivity gains averaged almost 3 per cent. But since 2004, the average has dropped to about 1 per cent. If the labour force also grows at 1 per cent annually, then overall economic growth is around 2 per cent. By historic standards, that’s meagre.”

Gordon’s thesis argues that all advancement in human prosperity is directly related to technological innovation, and until we return to these broad-based innovations of the years before 1970, there will be no further rise in the real incomes of the working class. Seen in the context of innovations in information technology, it is difficult to believe that labour would still be as valued as it was in the pre-IT decades. All activity in the industrial world would certainly become less labour intensive and no great technological leaps will ever allow the New Deal era to return. Mass employment generated by the automobile industry in the nature of manufacturing, driving, repairing, fuelling, washing will now give way to fewer jobs owing to computer technology in the form of robotic innovations that tend to replace the working class more and more. Visualise the arrival of driverless cars, which seems to be around the corner. More skills and education will undoubtedly be the requirement of tomorrow, rather than unskilled labour in labour-intensive jobs. Broad-based innovations will not have the same impact as they did in the past. Smartphones were introduced in 2007, Gordon writes, but have had no noticeable bearing on productivity figures.

Though overflowing with volumes of data and institutional details, with tables and charts of useful historical data that a student of U.S. history and political economy would find useful and fascinating, the book gives the trajectory of the economic history of growth and its fall within a negative economy that has overtaken the globe with greatly increased income and wealth disparity.

However, Gordon misses out on the more recent, significant inventions of carbon energy, gene-based medicines, new materials like grapheme, and automated vehicles that are a significant contribution to the progress in material sciences and health care. To him, broad-based inventions of the industrial age are of prime importance owing to their impact on labour welfare. It is also not true, as he maintains, that the United States alone is responsible for all these inventions. What about the contributions to information technology and communication by Indians and Chinese? The father of the Pentium chip is Venod Dham, an Indian who migrated to the U.S. in the early 1980s. Without him, computer technology would have not been where it is today. The invention of electricity, though significant, cannot be the technology that is valorised, as recent experiments in discovering new sources of power generation that have minimum greenhouse gas emissions cannot be ignored. These would indeed be substantial inventions in the future with positive and stabilising effects on maintaining ecological balance.

The book takes into consideration the impact of innovations on social life in the U.S. where, for instance, the importance attached to calorie intake or the cost of mutton or chicken determined dietary habits at the start of the last century. But not much attention is given to bring out a more comprehensive picture of the qualitative changes that have taken place in rural and suburban lifestyles. Gordon also ignores the changing landscape of the rise in employment over the last couple of decades.

Gordon’s history of U.S. growth and its fall misses out on a few trends in contemporary economic development, too. The U.S. heartland comprising the area around the Great Lakes, the upper north-eastern States such as New York and Pennsylvania and the Midwestern States, were once the core of the great Industrial Revolution. Manufacturing giants like auto, steel, heavy equipment, fossil fuel-based industries and ancillary-support-manufacturing units provided the bread and butter for the bulk of a growing nation, and the growth continued unabated well into the mid-20th century. The U.S. was the rising star, a beacon of prosperity that the whole world sought to emulate.

Disrupted march

It seemed nothing could disrupt this onward march. The U.S. was making everything it needed and the world wanted. But the forces of globalisation would bring this growth to a grinding halt. The U.S. could not isolate itself from the cheap labour that China was willing and able to provide. China’s admission to the World Trade Organisation (WTO) in 1978, the liberalisation of its communist regime towards free markets and the availability of cheap skilled labour made it an ideal manufacturing haven for companies in the U.S. Industrialists were held hostage by the labour unions in the U.S. and the cost of doing business was getting prohibitively expensive. China beckoned, and jobs went offshore to China, Mexico and wherever else goods could be produced cheaper than in the U.S. and shipped back to be sold. Eventually, what was once a thriving broad-based manufacturing sector was decimated by catastrophic job losses, prolonged economic decline and population loss, causing bustling cities to become ghost towns.

This continued until new economic shoots sprang in the “Rust Belt” with the rise of labour wages in China and the local labour unions’ adjustment to the new global wage parity. Employees began to understand that they would have to learn new skills and be willing to work with lower wages and fewer benefits to bring back jobs they had lost to international competition.

This worked to reinvigorate a dying auto industry while also bringing in foreign car manufacturers like Nissan, Honda and Toyota from Japan who thought it was more proficient to be near the consumer to be most responsive to their changing needs. Once labour rates had reached equilibrium between the local manufacturer and the international entrepreneur, it was far more efficient to build locally. Consequently, the industrial sector has added nearly a million jobs in the last five years and the surging demand for new cars has spiked employment in places like Michigan, which has recovered almost 50 per cent of the jobs it lost in the recession of 2008. Gordon could be advised to take note of this basic reality.

Gordon’s thesis that there would be slow economic growth in the age of information technology is also flawed to an extent. He has undervalued the impact of new technologies. Together with the rebirth of a new and improved manufacturing economy, sustainable and more efficient, the knowledge or digital economy has been generating hundreds of thousands of jobs which are mostly concentrated on the west coast in the famous “Silicon Valley”. The advent of the computer and the Internet has given birth to brand new industries like data mining and developing applications. This new engine of growth is underpinned and supported by millions of software programmers and phenomenal broadband speed so that the entire world is the new global village. Today, the digital economy employs over a quarter million people in California, and with it the demand for investment banking has grown to accommodate the need for mergers and acquisitions.

The U.S. is experiencing a tectonic shift in how it employs and supports its population. The divisions between industrial and non-industrial industries has blurred with the advent of “smart” cars that are controlled almost entirely by an on-board computer. Knowledge is a resource that does not need to be mined, grown or produced as a tangible. It is sourced and consumed without a smokestack. It is the cleanest form of employment, and as the economy matures from a manufacturing-based economy to a service-centered one, we will continue to see upheaval and disruption, with global forces repeatedly challenging the status quo until a new normal is found.

Until then, we can agree with Gordon that the future will be “more contentious” than the past because the growth in incomes will be indifferent and added weight will be given to income circulation. The paucity of funds will give rise to disenchantment, especially with the prevailing conditions that would thwart any drive of robust economic explorations. Mere privileging of technology may give spasmodic strength, but it is essential for the human race to remember the limits of such a passion.

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