Monday, November 24, 2014

Creative Destruction at Work

OXFORD – Throughout history, technological progress has created enormous wealth but also caused great disruption. The United States’ steel industry, for example, underwent a major transformation in the 1960s, when large, integrated steel mills were gradually put out of business by mini mills, destroying the existing economic base of cities like Pittsburgh, Pennsylvania, and Youngstown, Ohio. The mini mills, however, vastly increased productivity, and created new types of work elsewhere.

The story of US steel illustrates an important lesson about what the economist Joseph Schumpeter called “creative destruction”: Long-run economic growth involves more than just increasing output in existing factories; it is also implies structural changes in employment.

We can observe a similar phenomenon in the current information and communications technology (ICT) revolution, which has affected most areas of the modern workplace, even those not directly associated with computer programming or software engineering. Computer technologies have created prosperous new businesses (even business clusters) while making certain manufacturing workers redundant and sending older manufacturing cities into decline.

But the likes of Detroit, Lille, or Leeds have not suffered because of falling manufacturing output; on the contrary, output has been growing in these cities over the past decade. Instead, their decline stems directly from their failure to attract different types of jobs. To a large extent, this is a failure of policy. Rather than trying to preserve the past by propping up old industries, officials should focus on managing the transition to new forms of work. This requires a better understanding of emerging technologies, and how they differ from those that they are supplanting.

An important feature of the Industrial Revolution’s early manufacturing technologies was that they replaced relatively skilled artisans, which in turn increased demand for unskilled factory workers. Similarly, Henry Ford’s assembly line for manufacturing cars – introduced in 1913 – was specifically designed for unskilled workers to operate machinery, thereby allowing the company to produce its popular Model T – the first car that middle-class Americans could afford.

Indeed, much of the story of industrial development over the last century can be seen in terms of competition between an increasingly educated workforce and new technology that would dispense with their skills. We have already seen the impact – not least in the car industry – of robots that can carry out the routine jobs that were once performed by thousands of middle-income assembly-line workers.

Even greater workplace disruption lies ahead. Though history counsels caution in predicting how technological progress will play out, we already have a reasonable idea of what computers will be able to do in the near future, because the technologies are already being developed. We know, for example, that a wide range of skilled professions can be simplified with the help of “big data” and sophisticated algorithms.

One frequently cited example of this process is the Symantec Clearwell eDiscovery platform, which uses language analysis to identify general concepts in documents, and boasts of analyzing and sorting more than 570,000 documents in just two days. Clearwell is transforming the legal profession by using computers to assist in pre-trial research and perform tasks normally undertaken by paralegals – and even by contract or patent lawyers.

In the same way, improved sensory technology means that many transportation and logistics jobs will soon be fully automated. And it is not far-fetched to imagine the likes of Google’s self-driving cars making bus and taxi drivers redundant one day. Even hitherto secure, low-skilled service occupations may not escape automation. Demand for personal and household service robots, for example, is already growing by about 20% annually.

Labor markets may once again be entering a new era of technological turbulence and widening wage inequality. And this highlights a larger question: Where will new types of work be created? There are already signs of what the future holds. Technological progress is generating demand for big data architects and analysts, cloud services specialists, software developers, and digital marketing professionals – occupations that barely existed just five years ago.

Finland offers valuable lessons in how cities and countries should adapt to these developments. Its economy initially suffered from the failure of its biggest company, Nokia, to adapt to smartphone technologies. Yet several Finnish start-ups have since built new enterprises on smartphone platforms. Indeed, by 2011, former Nokia staff had created 220 such businesses, and Rovio, which has sold more than 12 million copies of its smartphone-based video game, “Angry Birds,” is crowded with former Nokia employees.

This transformation is no coincidence. Finland’s intensive investment in education has created a resilient labor force. By investing in transferable skills that are not limited to specific businesses or industries, or susceptible to computerization, Finland has provided a blueprint for how to adapt to technological upheaval.

Despite the diffusion of big-data-driven technologies, research suggests that labor will continue to have a comparative advantage in social intelligence and creativity. Government development strategies should therefore focus on enhancing these skills, so that they complement, rather than compete with, computer technologies.

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    1. CommentedCésar Augusto Torres L

      Las transformaciones en las fuentes de riqueza se ven ante la disyuntiva de hacerlo en la irracional economía de mercado depredador del medio ambiente o asumir las TIC y la RSE como idearios para creación de riqueza social, ambiental y financiera en equilibrios, la educación en nuevas ciudadanías es imperativo global

    2. CommentedNathan Coppedge

      The potential I see is with some of the game-type interfaces that are emerging, such as preferences and electrodes. There is a lot of potential with integrating keywords with electrodes, such as scanning the brain interactively and with trial-and-error integration. I think research has showed that interactivity allows electrodes to work more effectively with preferences. this is something that could work very soon for enhancing visual stimulus in public places, or across platforms, and even perhaps doing some intellectual tasks, like games and word processing. I am excited about the future of this kind of program. Also, there is an aspect of knowledge integration which could be exciting. See for example my book, The Dimensional Philosopher's Toolkit, not to be confused with Baggini and Fosl's classic Philosopher's Toolkit.

    3. CommentedAndrei Sandberg

      As a Finn I can say that we really do see creative destruction over here. Schumpeters term can be of course argued on many levels but yes...a kind of destruction is happening here. The financial crisis hit Finland very hard. Many questions rise - all from justification of "creative destruction" as something good for us - to how long and at what cost it is taking place? Whatever the terminology used we use we can still ask ourselves: does this have to happen in this scale in the 21st Century?

      In Finland we have all the problems as many other western countries. Growing inequality. A serious leadership problem as creativity is low. Start-ups are good news and a small piece (although inportant) of the whole.

      Our mainstream media is suffering from weak journalism and/or too one-sided reporting (favors right-wing parties - the National Coalition Party is the ruling force). The news have been sold to markets and when markets control the news...well it takes no genious to figure out what that is. We are in a recession and a 9% unemployment rate is a fact. Most of the jobs offered are only part-time jobs for certain periods of time. There's bad moral at workplaces (and society), people work themselves to death (stressing - fear of losing jobs)...literally. Our economic education in schools and universities, and onesided reporting in the MSM, has been astoundingly poor. Ie. neoclassical economics has been repeated time after time as the only solution (a cure for maladies). The country has been going through a painful privatisation project. Much of it has been outsourced to multinational corporations. We suffer from a democratic deficit (as seen in large part of Europe also) as people have lost faith in the political decisionmakers and establishment. People see most of them as corrupt....even in Finland. The right wing parties are in power. Our voter turnout in the latest EU elections 2014 were as low as 41%. That should tell us something about a systemic crisis. It is a disgrace in a sovereign country that wants to be call itself a democracy.

      I won't go much further into details but young people turn to alcohol and drugs in excessive amounts (some statistics say otherwise but on the streets one can clearly see a change for the worse). Reality-tv and other amusements to keep people from thinking and questioning is massive - people are escaping the harsh realities even if they are fixable with a political will. We have had (and still do have) opportunistic, narsistic, career-driven technocrats as our elected leaders and that is never an outcome a thriving democracy and economy wants to see. I'm of course a little exaggarating all this (as maybe some of you have read between the lines), but there are real issues here that should be taken into consideration by the leaders. I won't put a lot of of numbers on the screen because that is useless as we can see the results of neoliberal hegenomy to the Western economies worldwide. Although this "creative destruction" has been working overtime, we still have to reassess our views. Question ourselves.

      Planet Earth is now at its smallest than maybe ever. One could now call it a very large community. We are all in this together in the end. A change in public opinion always has an effect on political will. Respectfully yours

    4. CommentedEric A. Jordan

      Having worked for the City of Detroit I can only agree with this column. The GM assembly plants are among the most modern in the world. Detroit simply failed to attract new jobs. Instead of investing in transportation and housing we should have invested safety and education to attract skilled workers.

    5. CommentedDavid Lang

      This article is an excellent take on what needs to be done. New technologies have and will always shift the demand for labor. As it is notoriously difficult to predict future technologies it is essential to invest in transferrable skills.

    6. CommentedAdam Waud

      What a half hearted and sloppy effort of an article. Reiterates well trodden ideas throwing in the usual 'big data' reference for the buzz word factor. And am most puzzled by the reference to Leeds here - Leeds is hardly Detroit - it has been one of the fastest growing UK cities over the last 20 years, is much congratulated on its success of diversifying away from its previous manufacturing base, especially towards IT, and is often cited as a model of success. Did the author actually bother to do any research for this or was it a 10 minute rush job?

    7. CommentedRobert Snashall

      "Despite the diffusion of big-data-driven technologies, research suggests that labor will continue to have a comparative advantage in social intelligence and creativity."
      Thank god for research. How would we have figured that out without it!

    8. CommentedSergio Reuben Soto

      I think the real problem is not the new kind of jobs; the problems is that the automated production and the robotic production, is a real contradiction with the nature of capitalism. From what source could make the capital, the operating surplus that is needed for its accumulation? And you have to know that without accumulation of capital there is not growth in capitalism. The surplus must come from someone who produces more value than he receives for his work. And if those bodies are replaced by “merchandise produced by merchandise”, the source of value get dried!

    9. CommentedJoshua Ioji Konov

      En excellent and on time view in this article, however, no solutions of how the improving technologies could be used as economic tool for a long term market development: similarly, the ongoing globalization, Chinas industrialization, the internet e.g. should be considered alone with the rising technologies and productivity as reasons for increasing unemployment, indeed.
      The article does not get out of the box of the ideology of the modern day trickle-down economics to suggest long-term solutions, and Jesus would say: "One cannot pour new wine into old wineskins".