WASHINGTON, DC – 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.