Innovation in The Monday Briefing
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In time, breakneck growth in the early stages of industrialisation gives way to slower growth. All industrialised nations experience this change as a manufacturing boom fuelled by cheap labour runs its course.
Economists of all stripes would agree that investment and the application of technology drive economic activity. For decades governments around the world have made strenuous efforts to encourage investment and new technologies. Last year this orthodoxy came under fire from an unexpected source.
I don’t recall a time when there has been so much interest and anxiety about the effects of new technology on jobs. Last week I took part in a panel discussion at the House of Commons on the future of work. These are the ideas I tried to convey.
In the last decade Britain and the US have experienced an unusual combination of soaring asset prices and sluggish wage growth.
Between 2006 and 2016, the total value of assets held by UK households rose by 59% while average incomes increased by just 24%.
There are numerous explanations for why technology is no longer boosting productivity in the way it did in the twentieth century. The US economist, Robert Gordon, argues that today’s technologies are less productivity-enhancing than the great inventions of the past. The opposing view is that technology is still working its magic, but in ways, such as improving the quality of goods and services, which are poorly captured by the statistics.
Economists don’t agree about much, but there is a strong consensus that education is a powerful enabler of growth and living standards. In the last century, the number of years people spend in education has risen inexorably. Today better education and training are offering the answer to challenges as diverse as mass automation, low productivity and lack of social mobility.
UK growth has softened since the EU referendum, and at a time when the rest of the global economy is picking up. The pace of UK activity has not closely followed the news flow on Brexit, illustrating how politics is one of many factors influencing growth.
Errors in predicting the future of technology tend to be extreme. At one end are the naysayers, like the Hollywood mogul Darryly Zanuck, who in 1946 predicted that TV would flop, “People will soon get tired of staring at a plywood box every night."
The global economy enters 2018 with good momentum. Expectations for growth this year are rising in many countries, equities are hitting new highs and business confidence is buoyant.
The latest Deloitte survey of UK Chief Financial Officers, released this morning, shows the CFOs enter 2018 more focussed on controlling costs than at any time in the last eight years. CFOs seem to be reacting to slower UK growth and Brexit uncertainties with a renewed focus on costs.