Dani Rodrik writes: A specter of job-killing technology is haunting the world. How this challenge is met will determine the fate of the world’s market economies and democratic polities.
When the new industrial working class began to organize, governments defused the threat of revolution from below by expanding political and social rights, regulating markets, erecting a welfare state that provided extensive transfers and social insurance, and smoothing the ups and downs of the macroeconomy. In effect, they reinvented capitalism to make it more inclusive and to give workers a stake in the system.
Today’s technological revolutions call for a similarly comprehensive reinvention. The potential benefits of discoveries and new applications in robotics, biotechnology, digital technologies and other areas are all around us and easy to see. Indeed, many believe that the world economy may be on the cusp of another explosion in new technologies.
The bulk of these new technologies are labor-saving. They entail the replacement of low- and medium-skilled workers with machines operated by a much smaller number of highly skilled workers.
A world in which robots and machines do the work of humans need not be a world of high unemployment. But it is certainly a world in which the lion’s share of productivity gains accrues to the owners of the new technologies and the machines that embody them. The bulk of the workforce is condemned either to joblessness or low wages.
Indeed, something like this has been happening in the developed countries for at least four decades. Skill and capital-intensive technologies are the leading culprit behind the rise in inequality since the late 1970s. By all indications, this trend is likely to continue, producing historically unprecedented levels of inequality and the threat of widespread social and political conflict.
The key is to recognize that disruptive new technologies produce large social gains and private losses simultaneously. These gains and losses can be reconfigured in a manner that benefits everyone. Just as with the earlier reinvention of capitalism, the state must play a large role.
Consider how new technologies develop. Each potential innovator faces a large upside, but also a high degree of risk.
These risks are especially high at the dawn of a new innovation age. Achieving the socially desirable level of innovative effort then requires either foolhardy entrepreneurs – who are willing to take high risks – or a sufficient supply of risk capital.
Imagine that a government established a number of professionally managed public venture funds, which would take equity stakes in a large cross-section of new technologies, raising the necessary funds by issuing bonds in financial markets. These funds would operate on market principles and have to provide periodic accounting to political authorities (especially when their overall rate of return falls below a specified threshold), but would be otherwise autonomous.
Designing the right institutions for public venture capital can be difficult. But central banks offer a model of how such funds might operate independently of day-to-day political pressure. Society, through its agent – the government – would then end up as co-owner of the new generation of technologies and machines.
The public venture funds’ share of profits from the commercialization of new technologies would be returned to ordinary citizens in the form of a “social innovation” dividend – an income stream that would supplement workers’ earnings from the labor market. It would also allow working hours to be reduced.
. An innovation state, established along the lines sketched above, would reconcile equity with the incentives that such investment requires.
