From Technological Revolution to Armageddon and Back: Unbreakable Vicious Circle

On September 4, 2017 Elon Musk, founder of Tesla and Space X, has said again that artificial intelligence could be humanity’s greatest existential threat, this time by starting a third world war.[1] About a month before that the ATM (automated teller machine), which was initially viewed as a “killer” of bank tellers and a harbinger of mass technological unemployment, celebrated its 50th anniversary.[2] And a bit earlier, on June 27, it was fourteen years since Air France’s final Concorde flight took place (Concorde was the fastest passenger plane alongside the Soviet-built Tupolev 144, which was grounded in 1983).

What is common between the three? They are all technologies …. but each offering a unique glimpse of us and our world. The first is the manifestation of our ever-present fear before the unknown future, and technologies of the future in particular. The second is just one of many examples when the fear never materialized. And the third is the illustration of the economic model, which we are living in, where even the most advanced inventions can perish because of their economic unviability.

Speaking about the economic model and the future, it is worth mentioning what Bank for International Settlements (BIS), central bank of central banks, identified in its 2016 Annual Report as global economic risks: “One could speak of a “risky trinity”: productivity growth that is unusually low, casting a shadow over future improvements in living standards; global debt levels that are historically high, raising financial stability risks; and a room for policy manoeuvre that is remarkably narrow, leaving the global economy highly exposed“.[3]

This autumn we are also “celebrating” the tenth anniversary of the financial crisis, which is now often referred to as the Great Recession, and the consequences of which we still cannot overcome, i.e. no solid productivity gains and healthy sustainable economic growth.

As a consolation prize, over the same ten years, we lived through several generations of ever-bigger iPhones, massive proliferation of all sorts of digital gadgetry and introduction to mesmerizing world of the “internet of things”, which left many around the world with the strong sense that the fascinating future we’ve been told about for so long has arrived at last.

And finally, …. for those who did not notice, ….. over the same period of time we have been introduced to the whole two Industrial Revolutions. The first came from Jeremy Rifkin, famous American economist and theorist, who in 2011 published his best-selling The Third Industrial Revolution. Mr. Rifkin served as an advisor to three EU Commission Presidents – from Prodi to Juncker – as well as many heads of states around the world including governments of Germany, France and China. The principal ideas of his Third Industrial Revolution have been endorsed by the European Parliament, and represent the basis for a long-term sustainability plan, which addresses the trinity of the global economic crisis, energy sustainability and security, and the climate change. Mr. Rifkin was pronounced by many as visionary who leads us into the low-carbon future.

But before the dust settled over the Third Revolution, the Fourth was already storming in. This time Charles Schwab, founder of the World Economic Forum, released a book The Fourth Industrial Revolution, where he describes how this fourth revolution is fundamentally different from the previous three, which were characterized mainly by advances in technology. Some call it industry 4.0, but whatever you call it, it represents the combination of cyber-physical systems, the Internet of Things, and the Internet of Systems. In short, it is the idea of smart factories in which machines are augmented with web connectivity and connected to a system that can visualize the entire production chain and make decisions on its own. In this fourth revolution, we are facing a range of new technologies that combine the physical, digital and biological worlds. These new technologies will impact all disciplines, economies and industries, and even challenge our ideas about what it means to be human.[4] Mr. Schwab reckons we should fasten the seat belts and get ready for a ride because this future is just around the corner.

This created a heated debate and anxieties of several sorts. The talk about “inevitable revolution” immediately got accompanied by the talk about “inevitable Armageddon”. The latter camp is made of two main groups: those who fear mass unemployment caused by robotization, and those who fear that robots powered by advanced AI will take over the planet, and the human race is facing the risk of extinction either by the means of transhumanism or Third World War with robots.

A breath of fresh air of realism came from historians and economists, who reminded us about multiple failed predictions of both inevitable technological revolutions and fears of what revolutions could bring. Renowned Canadian scientist Vaclav Smil says: “The fast breeder reactor is one of the most remarkable examples of a prolonged and costly innovation failure. In 1974 General Electric predicted that by 2000 about 90 percent of the United States’ electricity would come from fast breeders. Other promised fundamental innovations that still are not commercial concerns include supersonic passenger flight, magnetic levitation trains, and thermonuclear energy.”[5]

James Bessen of Boston University points out that the ATM did not, in fact, replace bank tellers — there are more bank teller jobs in the US now than when the ATM was introduced. The ATM is no outlier here. Economists say that our chief economic problem right now isn’t that the robots are taking our jobs, it’s that the robots are slacking off. We suffer from slow productivity growth; the symptoms are not lay-offs but slow-growing economies and stagnant wages. In advanced economies, total factor productivity growth — a measure of how efficiently labour and capital are being used to produce goods and services — was around 2 per cent a year in the 1960s, when the ATM was introduced. Since then, it has averaged closer to 1 per cent a year; since the financial crisis it has been closer to zero. Labour productivity, too, has been low. Tempting as it may be to blame the banks, productivity growth stalled before the financial crisis, not afterwards: the promised benefits of the IT revolution petered out by around 2006.[6]

Robert Solow, the Nobel laureate economist, who since 1980s was researching impact of computerization on the economy, insists that the internet has not had much impact on productivity. Studies have struggled to find the positive impact of the internet on overall productivity – the evidence is everywhere but in numbers.[7]

However, inability of the global economy to overcome the effects of the financial crisis of 2007-08, hit the economist camp with the fears of “Armageddon” of their own. It bears the name of secular stagnation, which means that the world reached the peak of its growth and stagnation is the “new norm” (another popular term nowadays!). The funny thing is that many trained economists believe that it is a new phenomenon.

So, the society today got trapped under the barrage of all sorts of extreme emotions ranging from imminent technological revolution and bright future just around the corner to fears of the end of economic growth and human race. At times like this, it is always wise to look at ourselves from historical perspective.

Here is the abstract from the paper called “The History of Technological Anxiety and the Future of Economic Growth: Is This Time Different?”: “Technology is widely considered the main source of economic progress but it has also generated cultural anxiety throughout history. From generation to generation, literature has often portrayed technology as alien, incomprehensible, increasingly powerful and threatening, and possibly uncontrollable.

In fact, these worries about technological change have often appeared at times of flagging economic growth. For example, the Great Depression brought the first models of secular stagnation in A.Hansen’s 1938 book Full Recovery or Stagnation?. Hansen worried that economic growth was over, with population growth and technological innovation exhausted.

Anxieties over technology can take several forms, three of which are the most prominent. The first two worries are based on “optimistic” view that technology will continue to grow and perhaps accelerate. First, is that technological progress will cause widespread substitution of machines for labour, which in turn could lead to technological unemployment. Second, there has been anxiety over the moral implications of technological process for human welfare (greetings to Elon Musk! M.Y.). And third concern, cuts in the opposite direction, suggesting that the epoch of major technological progress is behind us. In recent years, pessimists argued that our biggest worry should be economic and productivity growth that will be too slow because of insufficient technological progress in the face of “headwinds” facing western economies. Some of these so-called “headwinds” including slow productivity and population growth, formed the basis of Hansen’s (1939) secular stagnation hypothesis.”[8]

In other words, we’ve been there and we’ve seen that before.

It is important to remember that large-scale technological changes take time. They do not occur overnight, not least because they require a suitable combination of social, organizational as well as technical conditions.

Central to such an evolutionary perspective is the idea that economic growth occurs in series of cycles or “waves”. The best-known version of this idea is the Kondratiev wave, a long wave of roughly 50 years duration. We are now well into a fifth, though precisely how far in, what its precise trajectory will be is not yet clear.

Each wave can be divided into four phases: prosperity, recession, depression and recovery. Each wave tends to be associated with particularly significant technological changes around which other innovations – in production, distribution and organization – swarm or cluster and ultimately spread though the economy. Although such diffusion of technology stimulates economic growth and employment, demographic, social, industrial, financial and demand conditions also have to be appropriate. In other words, it is “the total package” that counts.[9]

It is ten years this fall since the beginning of the financial crisis of 2007-08, and the global economy still cannot overcome its effects: central banks in Europe and Japan keep printing money, many other countries continue stimulus programs in the hope to push their economies to the trajectory of healthy growth, which is not happening. As BIS points out, we are still facing sluggish productivity growth, big debts and narrow room for monetary policy manoeuvring.

Generation of baby boomers began retiring this decade. Fertility rates in the Western world, Russia and China keep falling, and population is aging fast in many parts of the world, which directly affects the scale and patterns of consumption and demand, which in turn, has direct effect on profitability of service and manufacturing companies, and overall economic growth.

Core technology of the fifth wave is microchip (with core sectoral branches spreading to computers, digital IT, internet, software etc), which is widely believed has reached saturation stage, and therefore we have no productivity gains in the economy. In other words, new iPhones, gadgets and internet apps no longer represent a technological progress but rather an attribute of stagnation, since all the telecommunication and internet revolution was driven by microchip-based technological platform, which has already exhausted itself and reaching the peak of its 50-year cycle.

Another part of technological problem is that the next technological wave based on AI and robotics is only in the process of birth, and it will take another ten to fifteen years before new technologies start producing economy-wide positive productivity effects generating new jobs and growth.

All these demographic, economic and technological problems find their direct reflection in political arenas across the globe: from Great Recession, Brexit, migration crisis and Trump to Catalonia and geopolitical tensions between regional and global powers.

The main challenge and danger we all should worry about is not that technological progress is over or robots will take over the planet. At the end, we will shift to the new technological wave and we will successfully adapt to AI, and robots will eventually become an integral part of our life. We will adapt as we always did.

The main danger is how to survive the transition period and not to plunge into the chaos of global destabilization before we make it to the other side of the river.


References

[1] Hern, A., Elon Musk says AI could lead to third world war, The Guardian, September 4, 2017.
https://www.theguardian.com/technology/2017/sep/04/elonmusk-ai-third-world-war-vladimir-putin/
[2] Harford, T., We Still Waiting for the Robot Revolution, August 4, 2017.
https://www.timharford.com
[3] Bank for International Settlements, 86th Annual Report BIS 2016.
https://www.bis.org/publ/arpdf/ar2016e1.htm
[4] Marr B., Why Everyone Must Get Ready For The 4th Industrial Revolution, Forbes, April 5, 2016.
https://www.forbes.com/sites/bernardmarr/2016/04/05/why-everyone-must-get-ready-for-4th-industrial-revolution/
[5] Smil, V., When innovations fail, August 2015, IEEE Spectrum.
[6] Harford, T., We Still Waiting for the Robot Revolution, August 4, 2017.
https://www.timharford.com
[7] Chang, H-J., 23 Things They Don’t Tell You About Capitalism, Penguin Books, 2011, p. 37.
[8] Mokyr J., Vickers C., Ziebarth N. L., The History of Technological Anxiety and the Future of Economic Growth: Is This Time Different?, Journal of Economic Perspectives, Volume 29, Number 3, Summer 2015, pp. 31-50.
[9] Dicken, P., Global Shift: mapping the changing contours of the world economy, Sage 2015, Seventh edition, pp. 77-79.


Marat Yuldashev

Consultant with Experience in Cyprus
Russia/CIS
Eastern Europe and the Middle East, Research Associate

Cyprus Center for European and International Affairs

First Published at “In Depth Volume 14, Issue 5, November 2017″