Slowly but surely, the debate about the nature of economic growth is entering a new phase. The emerging questions are sufficiently different from those of recent decades that one can sense a shift in the conceptual framework that will structure the discussion of economic progress – and economic policy – from now on.
The first question, concerning the potential pace of future economic growth, has given rise to serious disagreement among economists. Robert Gordon of Northwestern University, for example, believes that the US economy will be lucky to achieve 0.5% annual per capita growth in the medium term. Others, perhaps most carefully Dani Rodrik, have developed a version of growth pessimism for the emerging economies. The key premise, common to many of these leading analysts, is that technological progress will slow, including the catch-up gains that are most relevant for emerging and developing countries.
On the opposite side are the “new technologists.” They argue that we are at the beginning of a fourth industrial revolution, characterized by truly “intelligent machines” that will become almost perfect substitutes for low- and medium-skill labor. These “robots” (some in the form of software), as well as the “Internet of things,” will usher in huge new productivity increases in areas such as energy efficiency, transport (for example, self-driving vehicles), medical care, and customization of mass production, thanks to 3D printing.
Second, there is the question of income distribution. In his instantly famous book, Thomas Piketty argues that fundamental economic forces are fueling a persistent rise in profits as a share of total income, with the rate of return on capital constantly higher than the rate of economic growth. Moreover, many have observed that if capital is becoming a close substitute for all but very highly skilled labor, while education systems need long adjustment times to supply the new skills in large quantities, much greater wage differentials between highly skilled and all other labor will cause inequality to worsen.
Perhaps the US economy in ten years will be one in which the top 5% – large capital owners, very highly skilled wage earners, and global winner-take-all performers – get 50% of national income (the percentage is not far below 40% today). Though national circumstances still differ greatly, the fundamental economic trends are global. Are they politically sustainable?
Working, learning, enjoying leisure, and being healthy and “productive” should be part of a continuum in our lives, and policies should be explicitly aimed at what facilitates this continuum and increases measured wellbeing.
The third question concerns the employment effects of further automation. As was true in previous industrial revolutions, human beings may be freed from much “tedious” work. There will be no need for cashiers, call operators, and toll collectors, for example, and less need for accountants, travel or financial advisers, drivers, and many others.
If the “technologists” are half-right, GDP will be much higher. So why should we not rejoice at the prospect of a 25- or 30-hour workweek and two months of annual leave, with intelligent machines taking up the slack?
Why, with all this new technology and imminent productivity increases, do so many continue to argue that everyone has to work more and retire much later in life if economies are to remain competitive? Or is it just the highly skilled who have to work harder and longer, because there are not enough of them? In that case, perhaps older workers should retire sooner to make room for the young, who have skills more appropriate to the new century. If such a shift were to increase overall GDP, fiscal transfers could pay for early retirement, while retirement itself could become a flexible and gradual process.
Finally, there is the question of climate change and possible natural-resource constraints, issues that have become more familiar over the last decade. Will these factors impede long-term growth, or can a transition to a clean-energy economy fuel another technological revolution that actually increases prosperity?
As these questions move to the top of the policy agenda, it is becoming clearer that the traditional focus on growth, defined as an increase in aggregate GDP and calculated using national accounts invented a century ago, is less and less useful.
The nature and measurement of economic progress should involve a new social contract that allows societies to manage the power of technology so that it serves all citizens. Working, learning, enjoying leisure, and being healthy and “productive” should be part of a continuum in our lives, and policies should be explicitly aimed at what facilitates this continuum and increases measured wellbeing.
The trends underpinning widening inequality will have to be counteracted using many policy instruments, with tax regimes and life-long, inclusive, and affordable education and health care at the center of the effort to ensure equity and social mobility. Though the quality of human lives can still be greatly improved, even in the advanced countries, focusing on aggregate GDP will be less helpful in achieving this goal.
The questions surrounding future economic growth are becoming clearer. But we are only at the start of the process of creating the new conceptual framework needed to enable national and global policies to advance the cause of human progress.