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Klaus SchwabFounder and Executive Chairman, World Economic Forum Stay up to date: Fourth Industrial RevolutionLicense and Republishing World Economic Forum articles may be republished in accordance with the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International Public License, and in accordance with our Terms of Use. The views expressed in this article are those of the author alone and not the World Economic Forum. Global Agenda The Agenda WeeklyA weekly update of the most important issues driving the global agenda SubscribeYou can unsubscribe at any time using the link in our emails. For more details, review our privacy policy.
Economic growth has been lackluster for more than a decade now. This has occurred at a time when economies have faced much unfolding change. What are the forces of change, how are they affecting the growth dynamics, and what are the implications for policy? A recently published book, “Growth in a Time of Change,” addresses these questions. Three basic ingredients drive economic growth—productivity, capital, and labor. All three are facing new challenges in a changing context. Foremost among the drivers of change has been technology, spearheaded by digital transformation. Slowdown in productivity and investmentProductivity is the main long-term propeller of economic growth. Technology-enabled innovation is the major spur to productivity growth. Yet, paradoxically, productivity growth has slowed as digital technologies have boomed. Among advanced economies over the past 15 years or so, it has averaged less than half of the pace of the previous 15 years. Firms at the technological frontier have reaped major productivity gains, but the impact on productivity more widely across firms has been weak. The new technologies have tended to produce winners-take-most outcomes. Dominant firms have acquired more market power, market structures have become less competitive, and business dynamism has declined. Investment also has been weak in most major economies. The persistent weakness of investment despite historically low interest rates has prompted concerns about the risk of “secular stagnation.” Weak productivity growth and investment have reinforced each other and are linked by similar shifts in market structures and dynamics.
Shifts in labor marketsTechnology is having profound effects on labor markets. Automation and digital advances are shifting labor demand away from routine low- to middle-level skills to higher-level and more sophisticated analytical, technical, and managerial skills. On the supply side, however, equipping workers with skills that complement the new technologies has lagged, hindering the broader diffusion of innovation within economies. Education and training have been losing the race with technology. Most major economies face the challenge of aging populations. Many of them are also seeing a leveling off of gains in labor force participation rates and basic education attainments of the population. These trends put an even greater focus on productivity—and technological innovations that drive it—to deliver economic growth. Rising inequalityGrowth has also become less inclusive. Income inequality has been rising in most major economies, and the increase has been particularly pronounced in some of them, such as the United States. The new technologies favoring capital and higher-level skills have contributed to a decline in labor’s share of income and to increased wage inequality. They have also been associated with more concentrated industry structures and high economic rents enjoyed by dominant firms. Income has shifted from labor to capital and the distribution of both labor and capital income has become more unequal. Rising inequality and mounting anxiety about jobs have contributed to increased social tensions and political divisiveness. Populism has surged in many countries. Nationalist and protectionist sentiment has been on the rise, with a backlash against international trade that, alongside technological change, is seen to have increased inequality with job losses and wage stagnation for low-skilled workers. Changing growth pathwaysWhile income inequality has been rising within many countries, inequality between countries has been falling as faster-growing emerging economies narrow the income gap with advanced economies. Technology poses new challenges for this economic convergence. Manufacturing-led growth in emerging economies has been the dominant driver of convergence, fueled by their comparative advantage in labor-intensive production based on their large pools of low-skill, low-wage workers. Such comparative advantage is eroding with automation of low-skill work, creating the need to develop alternative pathways to growth aligned with technological change. AI, robotics, and the Fourth Industrial RevolutionTechnological change reshaping growth will only intensify as artificial intelligence, advanced robotics, and cyber-physical systems take the digital revolution to another level. We may be on the cusp of what has been termed the “Fourth Industrial Revolution (4IR).” And globalization is going increasingly digital, a transformation that, analogous to 4IR, has been termed “Globalization 4.0.” Technological change recently has not delivered its full potential in boosting productivity and economic growth. It has pushed income inequality higher and generated fears about a “robocalypse”—massive job losses from automation. This should not cause despair, however. Advances in digital technologies hold considerable potential to lift the trajectory of productivity and economic growth, and to create new and better jobs to replace old ones. As much as two-thirds of potential productivity growth in major economies over the next decade could be related to the new digital technologies. But technological change is inherently disruptive and entails difficult transitions. It also inevitably creates winners and losers—as does globalization. Policies have a crucial role to play. Unfortunately, they have been slow to adapt to the challenges of change. With improved and more responsive policies, better outcomes are possible. An agenda to harness the potential of new technologyThe core of the forward policy agenda is to better harness the potential of the new technologies. Reforms must seek to improve the enabling environment for firms and workers—to broaden access to opportunities that come from technological change and to enhance capabilities to adjust to the new challenges.
Reforms are needed at the international level as well, although the dominant part of the agenda to make technology—and globalization—work better and for all rests with policies at the national level. Not only must past gains in establishing a rules-based international trading system be shielded from protectionist headwinds, but new disciplines must be devised for the next phase of globalization led by digital flows to ensure open access and fair competition. Sensible policies on migration can complement national policies, such as pension reform and lifelong learning, in mitigating the effects of population aging. The era of smart machines holds much promise. With smart policies, the future could be one of stronger and more inclusive growth. How did technology impact the economy?Technology has lead to an increase in the division of labor and specialization of jobs within a business, further contributing to the efficiency with which a business is able to run.
What are the roles of technological change in economic development in the past and in the present?In economics, it is widely accepted that technology is the key driver of economic growth of countries, regions and cities. Technological progress allows for the more efficient production of more and better goods and services, which is what prosperity depends on.
How did technology transform the United States economy in the period from 1865 to 1898?In the period 1865 to 1898, technological change transformed the economy by making Americans more reliant on machines but also involving more regions of the country in manufacturing.
What role did technological advancements play in the economic growth of the US in the late nineteenth century?The capital-intensive trajectory of US economic growth during the 19th century reflected the high rates of investment and significant innovation in the transportation and communications infrastructure (canals, railways, the telegraph and telephone) that contributed to the development of another major factor in 19th- ...
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