Will Employment Taken away by Machine? / Light and Shadow of the Knowledge Society

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The relation between employment and technology has been focused suddenly. It’s triggered by “Race against the Machine” by E.Brynjolfsson and A.McAfee, maybe.
In spite of that, I didn’t have wanted to read it till now positively because there didn’t seem to be new discoveries beyond theories about the “Knowledge Society” that had originated from P.F.Drucker over this half a century.

Still, a kind of booms is likely to include some meaning, so I want to take up this theme at this time.

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【Economic Growth Models and Technological Progress】

In the background of public attention to “technological unemployment” that they approached with this work, there seems to be the contemporary blockage of economics as I mentioned at “Disequilibrium Economics“.
Such as “The Great Stagnation“( T.Cowen), the commonly accepted theory about today’s economic stagnation, especially instability of employment of advanced countries, has regarded blockage of innovation due to saturation of markets as its main reason.
If explaining it from a view of the economic growth theory, it’ll become as below.

In economics, economic growth is often expressed by the next equation.

Y = A × K＾α × L＾β　　　　st　0 < α,β < 1
…Y：GDP、A：technological progress、K：productive capital stock、L：Labor force

It’s so-called the Cobb-Douglas production function, and it’s frequently used by reasons below.

• 　It can relatively properly approximate a feeling of realities. For example, if continuing to pour just one of various production factors, an increase of production will reach the ceiling in course of time.
• 　It’s easy to operate mathematically. For example, the relation between input and output (e.g. It will be constant returns to scale if α＋β＝1, increasing returns if >1, and decreasing returns if <1.) , or between wages and labor share (e.g. if being constant returns, partial differentiation by L will be “dY/dL=(1-α)・(Y/L)”. In competitive markets, it equals wages, so labor share will become “1-α”.).

According to the equation above, it’s necessary for an increase of Y to expand K, L or A. Nevertheless, an effect of an increase of production capital stock will be likely to reach a peak by decreasing returns of marginal productivity, especially in advanced countries.
Therefore, a key factor for breaking through from the stagnation will become nothing but A, that’s technological progress.

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【Technological Unemployment and Theory of Knowledge Society】

On the other hand, their “technological unemployment” is kind of antithesis of those, so it was able to become a sensational issue.
They are saying “Rather, never experienced digital technology progress has taken away employment opportunities from us, and it has caused such a long and serious stagnation”.

Technological progress is generally something like labor saving. In the above equation, if A increases, required amounts of L under given K will become less than before. We can often hear examples about horses, cows and agricultural machines, or typists and word processors, etc. If new technology comes to the force, employment opportunities which have depended on conventional technology and industry for a long will be taken away.
Well, over the past few centuries, more jobs than lost ones have been created by new industry related to new technology and final demand based on expansion of income.

However, they focused on difference from past technology of today’s digital technology. One of them is that it has begun to corrode territories of human such as pattern recognition or communication, and another is exponential speed of progress.

Of course, there may be opinions like “Even if the past is so, the future is not always the same”. Such words seem to be including a lack of recognition about the nature of knowledge and digital technology.
Knowledge as economic goods is noncompetitive, so additional production will not require any costs, and someone’s consumption will not disturb others’ consumption. In addition, a pretty proportion of it has been becoming nonexclusive by improving of accessibility by internet or SNS. Through such a process, a sort of knowledge will change into something like public goods, and that will accelerate creation of new knowledge through combination of different ones.

Here, let’s suppose that a quantity of knowledge that is produced in a certain period is constant. Even if so, the number of combination will snowball, and new generated knowledge will increase exponentially, maybe. That’s so-called “combinatorial explosion”.
Platforms for that have already become a part of our lives…for example, internet, SNS, mobile devices and so on. Such things were brought by combination of the knowledge society and digital technology, so they said “We have already reached rest half of a chessboard” and that caused strong sense of crisis of technology unemployment to them.

Yet, such an awareness of issues is not specific to them. For the past 20-30 years, many investigators have proposed various problems just like the nature of knowledge as a production factor or a management resource, affinity with digital technology, or overwhelming impacts on business activities or societies and economy. A pioneer of them may be Drucker, and its clue was already included in his “The Age of Discontinuity” in 1960s.
If there are points added by “Race against the Machine” in those…it may be somewhat pessimistic future prediction, in which technology will progress more rapidly than adjustment ability to environmental changes of human society and it will become alternative to human beings.

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【Will “The Logic of the Powerful” Be Able to Save This World?】

In spite of proposing sensational problem, “Race against the machine” ends with a conclusion of “reform of organization” and “human capital” which may be a commonplace for people who know something about the “knowledge society” since Drucker to a certain degree.
Besides, they seem to be more optimistic about the future than other investigators. Until them, almost thoughts about the knowledge society have claimed “All workers must become knowledge workers, and we cannot survive without that”. In contrast to those, they seem to want to say “Whoever will be able to become global experts of micro markets in course of time”.

Needless to say, opportunities have been expanded, and they will be opened up more and more with advancement of digital technology from now on.
The global market integration has transformed each market into “winner-take-all”, but it also has given a opportunity for various abilities to each people through subdivision of markets. Tools and platforms for that are rich variety such as application stores including Google and Apple, crowd sourcing for various skills, co-creation by contests or social design and so on. Newly creative knowledge is often likely to emerge from combination of different ones, so it may probably be accelerated by recent various business models represented by words like “open”, “free” or “share”.

If thinking so, surely, the future of this world looks rosy. It may be a transitional phenomenon although technology unemployment is widely and serious.
Well, will it give each place in which we can live more creatively, to “all” of us?

However, those are opportunities to the end, so they will not ensure results they will bring. There seems to be a weakness of this kind of theories about the knowledge society or the digital economy.
On this blog, one of the key words I’ve mentioned for few years is “redistribution for growth“. Economy is nothing but an inter-dependent system. Even if being the haves, they cannot continue to be so without support by many other have-nots through markets. As I mentioned at “The Creditors’ Dilemma“, this world under the spread of mercantilism has been drawn into such a vortex, and kind of technological progress will accelerate it basically, maybe.

Of course, they are also aware of such a thing. For example, they mentioned expansion of disparity between winners and losers by digital technology, and it is the same as something underlying recent criticism to general equilibrium models.
Originally, Drucker also had searched for key of economic development to whether more people could acquire opportunities from the knowledge society. That’s why he might have focused on organizations which could manage knowledge, especially non-profit sectors in the later years of his life.

Nevertheless, in average organizations or regions, it’s also fact that such a perspective has not yet influenced until today which has passed several decades since the time when the knowledge society began to be discussed.
The solution strategies from such thoughts, for example organizational management or educational reforms, have been regarded as “the logic of the powerful”, so they have not been spread into the society generally…It’s a unfeigned truth, maybe.

Therefore, we must seek the solution from different view points. If remembering the equation in the beginning of this article, one of its clues may be expressed something like the following equation.

Y = ( a1 × K^α × L^β )^a2
…a1：technology progress in narrow sense、a2：technology in broad sense、business model reforms or changes in industry structure etc.

In short, it will end with only improvement of efficiency if increasing just a1, so improvement of a2 is essential for expanding economic pie.

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Perhaps, emerging nations may be better at adapting themselves to business models or social systems which are required by the new reality than advanced nations because they don’t have any binding ties, persistence or stickiness related to conventional technology or experience. If so, those who will be left behind may become lower and middle classes of advanced nations that have been exposed to factor price equalization by globalization recently.
That’s corresponding to “restoration of middle class” which has been focused both in the East and the West. We have to think “What kind of economic policies and social systems can support people who are exposed to obsolescence of knowledge and skills with never experienced speed?”
Its answer will be raison d’être of nations and regions, even in global and borderless market integration.

From a view of the knowledge society, it may require people or organization that can design the future of this world and organize regional resources toward realizing it… I’m going to think about something like that at the next time.