'The Technology Trap' - Joined Carl Benedikt Frey

Hi, this is Ben Akmar, and I'm here with Carl Frey at Oxford University. I've just had the pleasure to read your new book, The Technology Trap, which I absolutely loved. And what you do in this book is you look at the economic and societal impact of technology, and you You go back through history and say, okay, we've been there before. We've had previous industrial revolutions that have changed society, that have changed our economy and our job market. What would you say is the closest example to what we're experiencing today? If we go back in history, have we really seen this before? Because You hear other people saying, now we have artificial intelligence and machine learning and virtual reality and so many blockchains, so many different technologies coming together that this is something we've never experienced before. How would you respond to that?

Well, I think every time it's different. There's no question about that. But the only thing we have to go on in analyzing the present and the future is is the past because it's the only time we have any data. And I think what history does, it puts current times in perspective. And I think that is something that is very much needed in the debate that we're having. Because if you go back to the 1960s and pick up the New York Times, you will see that we had exactly the same debates back then. So if you go back to the 1930s, you would see the same pattern over again. You go back to the 1830s, same discussion. And one thing I found very extraordinary when I was researching this book is how much technology has progressed over the centuries, but how much the debate surrounding its effects has not. And I think that one common pattern in history, and that applies to today, is that technology is likely to be more resisted when it replaces people's jobs and skills rather than augments them. And there it doesn't, you know, matter whether you're replaced by artificial intelligence or a spinning machine. The effect for you, for yourself, your self-esteem, and your income is the same. And what I do in the book is that I try to draw parallels between current times and the First Industrial Revolution, which was the most sort of similar period that we've been through in terms of economic trajectories. So we saw that that was a time when middle-income jobs disappeared very much like this time around. We saw that inequality was on the rise, wages failed to keep track with productivity growth, so the labor share of income was falling. And it was also a time of a lot of social unrest and political polarization, as we are seeing today. So I think those parallels clearly apply. But then there are also many differences, right? So the technology, as you mentioned, is very different in many ways, although it has similar effects in terms of replacing many people's jobs and skills. And what we also see is a big, big difference, of course, is the political system. So back in the 19th century, most people who went out and smashed machines, like the Luddites for example, they were politically disenfranchised, right? Property ownership was still a requirement for voting. They weren't represented by the labor unions or anything. They had much less political voice than people And unlike voting with sticks and stones as people did back then, most people in the West are now showing up at elections and they're showing their dissatisfaction through political means rather than violence as they did back then.

So would you say that some of the popular uprising that we're currently experiencing in Europe and the US is one sign of this?

Well, clearly, so we've had an enormous backlash against trade and globalization. We're seeing that play out now between the United States and China. And Trump won 3 key swing states, right, that have been won by the Democratic candidate every election since 1992. And that was Michigan, Wisconsin, and Pennsylvania. And what the states have in common is that they were both very hardly hit by globalization, but also automation. So there are more robots in Michigan alone than in the entire American West. And we've already seen this backlash against globalization, but automation has had very similar effects. Even with tariffs, the jobs are very unlikely to come back. Most people today actually already work non-traded sectors of the economy, so they're quite shielded from future globalization. The rise of China has already happened, but they are not shielded from automation. They're not shielded from Amazon Go and autonomous trucks and so on.

Mm-hmm.

Those are jobs that can't be shipped abroad, but they can be automated. And I'm not predicting that we're going to see a similar backlash against technology, but I think that's something that will a lot of people don't have on their radar. And one point that I try to make in the book very strongly is that resistance to replacing technologies have been the historical norm rather than the exception. And if the Fourth Industrial Revolution, as it's commonly called, was something inevitable, right, every country would have adopted the same technology to the same extent, and every country would have been rich as a consequence of that, right? If technological progress was something inevitable, the Industrial Revolution would have happened a bit earlier in the history of mankind. And I think that's important to remember.

So in the book you distinguish between enabling or technology that creates jobs and those technologies that that destroy jobs or replace them. Can you give me some examples of those, maybe from the past, and then make those parallels in what we're experiencing today, and maybe looking at some of the technologies that we're seeing today and whether you see them as replacing or enabling technologies?

Sure. So this is work originally by Daron Acemoglu and Pasquale Rastrepo, which makes this distinction between replacing technologies and enabling technologies, and I look at sort of economic history through the lens of their framework. But yes, if you take, for example, a telescope, right, it didn't replace any people doing any pre-existing work. It allowed us to look at the moons of Jupiter and do previously inconceivable things, and it created new tasks for labor. If you look at the elevator operator, for example, That, you know, got rid of the operator, but we still use elevators more than we ever had, right? We have more skyscrapers, high-rise buildings are built every year, but that doesn't create any new demand for people with a good sense of, you know, timing the elevator to the floor. And that has worked in the opposite direction. Right. It's replaced people in those jobs and tasks. And you can see that different periods of time have been more replacing and more enabling. So today, if you look at industrial robots, for example, those have replaced lots of people in the assembly lines in the factories. But if you look at computer-aided design software, right, it's made architects more productive and it's You know, if anything, created new activities for them. And so those are sort of 2 different technologies today. And I think the worrying part is that the replacing technologies, as we discussed earlier, tends to sort of affect low-skilled people more. And the enabling technologies of our time tend to help very skilled workers. And we're seeing this sort of tendency of skilled-biased technological change creating new jobs for very skilled people, but worker-replacing technological change on the lower end of the income distribution.

So what do you think this will mean for the future of our society and our economy? Will we see the Luddites of today rising up and voting in populist politicians, or do you think— what are some of the things we could do then as societies or as businesses? If you think about some of the policymakers, some of the business leaders, what are some of the levers we can pull to maybe help some of those people that are at risk of seeing their jobs being replaced? Any recommendations?

So one thing that I tried to avoid in the book is sort of extrapolating from this, you know, decades into the future, because I think that's been a common mistake. So Marx and Engels both thought that the mechanized factory would lead to the immiseration of working people, and broadly speaking, right about the period they lived through, but they could not have been more wrong about the long term. And if you go back to the post-war decades, most people, you know, developed models in which, you know, everybody just benefits equally as the economy grows. And that was sort of, broadly speaking, an accurate picture of the time they lived in. So I'm trying to learn from history in that way as well and sort of say that we shouldn't just extrapolate. But we can at least learn something from looking at the technologies on the horizon. And as I discussed earlier, I think most of the technologies on the horizon are likely to create more tasks for skilled people and replace people with lower skill sets. And that should be of concern in itself for the next sort of coming years and decades. And new things may emerge that change that balance, but we're already seeing many of these trends for a number of decades now, and we're already seeing societies becoming more polarized. And we also therefore need to think about the short-run consequences of this. And by the way, when economists say the short run, we're not very specific about what we mean. And in the context of the First Industrial Revolution, the short run was 7 decades. And during this time as well, it wasn't, you know, the transition wasn't really managed at all, right? So during the time, that time, most most economists thought that the world was Malthusian, so that higher incomes would only translate into larger populations with no gains in— income gains in per capita terms. And as a result of that, most people thought that compensating the losers to technological change was, if anything, counterproductive because you would just grow the population and they would be worse off. In the end of it, and that led to sort of the Poor Laws, which was actually the only social safety net that existed in Europe. And Britain actually had one of the most generous social safety nets during the Industrial Revolution, which actually might explain why some people rided less against mechanization in Britain than in other parts of the world during the 19th century. But I think what we know today is that we can actually help people adjust without it having, you know, any adverse impacts. So the world is not an institution, and we can use, you know, educational policy to help retrain people. We can, you know, use housing policy to build more housing where new jobs are being created. We can build more infrastructure to connect declining and expanding places because the new geography of jobs is very different from the past. All new jobs tend to cluster in very sort of skilled cities. At the same time as jobs are disappearing in old manufacturing cities, we can use the tax systems to compensate people at the lower end of an income distribution.

Housing is an interesting example. This is something I've— until I wrote the book, it was never as clear to me how important this is because you've got Silicon Valley places where People, even with a quite modest income, find it really difficult to find a good house.

Yeah, I'm finding it's hard to find a good house in Oxford.

Yes, yeah, same here. Cambridge, London, almost impossible to buy a place. Yes.

Yeah, and I think so one of the things that a lot of people don't realise is that the main beneficiaries of this has actually been others. of real estate because we have a lot of zoning restrictions in these places. Housing supply tends to fail to keep pace with demand. And because people that work in skilled sectors of the economy, they tend to go out and, you know, buy a lot of in-person type of services. So a lot of low-skilled people providing those in-person type of services services have to move into these places as well. And they are really struggling to afford to live there. So I think this is—

And it's strange. People in the past predicted that actually in the future you don't need to live in certain places to get great jobs. But actually what we're seeing is this concentration of skills. I think Apple just invested— they just made an announcement that they want to invest in housing in California to encourage people to move there, which is— do you think this is something that companies should actively be doing? Making it more likely or giving people the opportunity to have housing so they can move there and work there?

Well, I'm not a business manager, but, you know, businesses compete for workers in the labour market, and obviously they need to make sure that they're able to attract talent. And if the cost of housing becomes so high that they struggle to do that, Well, they can either move their offices to another place or they can try to make it easier for people to actually live where they are currently based. So I think that's—

So education, housing, any other levers?

Well, so one example that is close to my heart, so I grew up in southern Sweden in a small city called Lund, which is close to another city called Malmö, which has a sort of specialized in building ships for most of the 20th century. And when the shipyard closed down in the early 1990s, Malmö was doing very poorly for a long time. And the revival essentially came with the construction of the bridge to Copenhagen.

Mm-hmm.

And so all of a sudden, people could stay put in Malmö, where housing was cheap, and tap into a booming labor market in Copenhagen. Community in there. Most people would live in Malmö, so it meant that they would spend most of their income there as well, which gave a boost to the local service economy there. And that created a virtuous cycle, and it's now one of the most dynamic labour markets in Europe. So I think by connecting places, a lot can be achieved as well. I think that the real immigration crisis Yes. Today is actually that people are not moving enough. And, you know, a lot of people sit around in places with 25% youth unemployment and don't move. And I think we need to actually help people do that. You know, moving homes can be seen as an investment which requires liquidity up front to get the future revenue stream in terms of a new job. And I think relocation vouchers And it's something that can, you know, really help. So I don't think that there is this sort of one policy that will solve everything. I think that there's a host of policies that, you know, may seem minor individually, but they can make a big difference collectively.

Interesting.

And that's one of the points I tried to make in the book.

The other 2 levers that I hear a lot in this whole world is shortening our work week. Actually, if we think there are technologies coming in to replace our jobs, maybe if we only work 3, 4 days a week, that could free up some of us to do things differently. And then obviously universal basic income. Have you got any views on those?

Sure. See, universal basic income, I just I don't think it solves the problems. I think people have better consumption possibilities in general than they ever had, right? We have access to a lot of stuff for free. Education and healthcare are 2 exceptions, and I think something needs to be done about that. But overall, I think people are more concerned about their relative position in the labor market and the fact that they are struggling to find jobs. I think that's a very good point. Jobs which they feel proud of. And I think most economists tend to think that the purpose of production is consumption, but we actually know that that's not true because people put a lot of meaning to their jobs. And by introducing universal basic income, you're not going to solve that. In addition to that, if you use UBI, as a replacement to all other existing schemes, that will, if anything, increase income inequality because current transfers target people at the lower end of the income distribution, whereas UBI is received by everybody. And so I don't think that it's the solution. There are good arguments for it, but I don't think automation is one of them. And I forgot the other question.

Yeah, the other one was reducing our work week.

Right, so we've been doing that for about a century. But we've taken also very different approaches in Europe and the United States. And I think Keynes wrote this famous essay back in 1930 predicting a 15-hour work week, and I think he would be very surprised with how much We actually still work. And I think the reason for that is that we compare our current standard of living to our own past, but also to other people around us. So relative income seems to matter a lot to how we feel about ourselves. And that is driving us to want to work more and to continue to work hard to be able to afford those, you know, Nice holidays and whatever it is. So yeah, shortening of working hours. I think, you know, I wouldn't mind a 4-day workweek myself. But I think, you know, people's preference points in the direction that, you know, most people actually don't want to work. And most people in the US in particular actually want to work more hours rather than less.

I absolutely loved reading The Technology Trap. What would you say are then the— what's the key message of the book, or the key points you wanted to make in it?

Well, the key point is simply that, you know, continued technological progress shouldn't be taken for granted or as a given. The past 200 years have been extraordinary in the sense that most people have also accepted technological change as the sort of driver of growth and prosperity. But for most people, history— people did not. And if large groups in the labor market actually see their incomes fall for 4 decades now, which is what has happened in the United States, there's nothing to ensure that such positive attitudes are going to continue. And drawing upon the experience of the Industrial Revolution illustrates that, you know, if you look to history, if history is any guidance, resistance could potentially follow, which would be bad for everyone. So we need to think carefully also about the sort of short-run consequences of rapid technological change.

Very good. So there's a clear message to to decision-makers, politicians, business leaders, actually we need to take this seriously and prepare for this. So—

I hope so.

Thank you very much, Carl. A real pleasure. Thanks for seeing me.

Thank you.