Is technological change creating a new global economy?

The unprecedented speed of change, as well as the breadth and the depth of many radical changes unleashed by new digital, robotic and 3D technologies, is having major impacts on what we produce and do, how and where we do it and indeed how we earn a living. And while the transformation will proceed differently in advanced and developing parts of the world, no country or market will be spared from the tidal wave of change.

As the World Economic Forum highlights annually in its Global Competitiveness Report, productivity is the most important determinant of long-term growth. Yet productivity growth has stagnated around the world, particularly since the great recession, putting into question our ability to provide rising living standards for the world’s citizens. While arguments abound as to what has been driving the productivity slowdown, an important question is how the Fourth Industrial Revolution will drive it in the years to come.

In theory, the application of new technologies to existing problems should improve efficiency and thus productivity. Technological innovations tend to raise labour productivity by allowing the existing workforce to do more with less, by replacing existing workers with technology (with an obvious downside, as I will come to later), and they also usher in new products and processes that open up new sources of growth.

Yet there is much debate on the likely size of the impact. On one hand, experts such as Robert Gordon of Northwestern University believe that the most important contributions of the digital revolution have already been made, and that the productivity impact of the current technological revolution is almost over. That would be worrisome indeed, particularly given the present slowdown.

On the other hand, “techno optimists” such as Eric Schmidt, the chairman of Google, believe that the world has reached an inflection point and will soon be experiencing faster growth and a major surge in productivity.

Given the speed and breadth of the changes now being unleashed, it is clear that new technologies will dramatically change the nature of work across all industries and occupations. And as automation will inevitably replace labour in providing existing goods and services, the main question is how long this will take and how far it will go.

It has always been the case that technological innovation destroys some jobs and replaces them in turn with new ones, in a different activity and possibly in a different place. As technological innovation forges ahead, one can expect that low-skill activities will be progressively replaced by tasks that require creativity and social intelligence. And as the job market becomes increasingly segregated into “low-skill/pay” and “high-skill/pay” segments, social tensions will inevitably rise.