I’ve suggested recently that although high economic growth in recent decades has greatly improved average life expectancy, infant mortality, and other leading indicators policymakers and development practitioners were still worried about the sustainability of these trends and whether people in developing countries would eventually enjoy the high standards of living of high-income countries. This, against the background of a planet under increasing stress, particularly as a result of climate change. In this blog, I explore some of the actions needed to sustain our global economy.
The World Economic Forum describes this transformation as the “Fourth Industrial Revolution,” because the speed and extent of disruption is unprecedented.
A key trend of this revolution is the emergence of technology-enabled, peer-to-peer and business-to-peer platforms that facilitate commerce. These platforms – most commonly referred to as the “sharing economy” or the “collaborative consumption economy” – have grown exponentially in recent years, disrupting existing industry structures and value chains in developed and emerging markets.
Notably, growing internet and mobile penetration catalyzed the growth of disruptive firms and innovations, such as Uber and Airbnb, in a number of middle- and low-income countries. However, as highlighted by the 2016 World Development Report, for this digital revolution to be inclusive, and for it produce dividends for the poor, its “analog complements” – such as the institutions that are accountable to citizens and the regulations that enable workers to access and leverage this new economy – should also be in place.
The global proliferation of these collaborative platforms poses new challenges for regulators trying to keep pace with rapidly evolving business models. This issue was at the heart of discussions between former Head of Public Policy at Facebook, Uber and DJI, Corey Owens, and Professor of Law at Howard University and former regulator at the Federal Trade Commission, Andy Gavil, at the 2016 Business Environment Forum that took place in Washington from May 17 to 19.
There is increasing evidence that labor markets in developed countries are polarizing or hollowing out. On the one hand, the share of employment in high-skilled, high-paying occupations (managers, professionals and technicians) and low-skilled, low-paying occupations (elementary, service, and sales workers) is growing. On the other hand, the share of employment in middle-skilled, middle-paying occupations (clerks, plant and machine operators) is being squeezed. There is ample evidence of polarization in the United States (see Acemoglu and Autor, 2011; Autor and Dorn, 2013; and Autor (2014) for a less technical discussion), and also in Western Europe (Goos, Manning, and Salomons, 2014). Harrigan, Reshef and Toubal (2016), more recently, document the same phenomenon in France, using firm-level data.
Call it “secular stagnation,” or the disappointing “New Mediocre,” or the baffling “New Normal” – or even the back-from-the-brink “contained depression.” Whatever label you put on today’s chronic economic doldrums, it’s clear that a slow-growth stall is afflicting many nation’s economies – and, seven years into a lackluster recovery from the global financial crisis, some fragile economies seem to be lapsing into another slump.
As policymakers struggle to find a plausible prescription for jump-starting growth, a tug-of-war is under way between techno-utopians and techno-dystopians. It’s a struggle between optimists who foresee a world of abundance thanks to innovations like robot-driven industries, and pessimists who anticipate a cash-deprived world where displaced ex-workers have few or no means of earning an income.
To add a bracing dose of academic rigor to the tech-focused tug-of-war, along comes a data-focused realist who adds a welcome if sobering historical perspective to the debate. Robert J. Gordon, a macroeconomist and economic historian at Northwestern University, takes a longue durée perspective of technology’s impact on growth, wealth and incomes.
Gordon’s blunt-spoken viewpoint has caused a sensation since his newest book, “The Rise and Fall of American Growth,” was launched at this winter’s meetings of the American Economic Association. His analysis injects a new urgency into policymakers’ debates about how (or even whether) today’s growth rate can be strengthened.
When Gordon speaks at the World Bank on Thursday, March 31 – at 11 a.m. in J B1-080, as part of the Macrofiscal Seminar Series – economy-watchers can look forward to hearing some ideas that challenge the orthodoxies of recent macroeconomic thinking. His topic – “Secular Stagnation on the Supply Side: Slow Growth in U. S. Productivity and Potential Output” – seems likely to spark some new thinking among techno-utopians and techo-dystopians alike.
To watch Gordon’s speech live via Webex – at 11 a.m. on Thursday, March 31 – click here. To dial in to listen to the audio, dial (in the United States and Canada) 1-650-479-3207, using the passcode 735 669 472. For those telephoning from outside the United States and Canada, the appropriate numbers can be found on this page.
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Youth in Kenya are experiencing much higher unemployment rates than the rest of the Kenyan population. In 2014, Munga and Onsomu, reported that youths aged 15-19 and 20-24 years had unemployment rates of 25% and 24%, respectively about double the overall unemployment of 12.7% for the entire working-age group. Despite this, the Kenya youth are slowly transitioning from the risk averse mentality; that is, one has to be employed and depend on a monthly income in order to earn a living.
“I am very happy to go missing. I take myself out of the electronic loop as often as I can. I am not a fast responder. I do search for the silence.”
-Kenneth Branagh, a director, producer, and screenwriter from Belfast, Northern Ireland. At 29, he directed and starred in the film Henry V (1989), which brought him Best Actor and Best Director Oscar nominations. In April 2015, he announced he would form the Kenneth Branagh Theatre Company, with which he will present a season of five shows (The Winter's Tale, Harlequinade/All On Her Own, The Painkiller, Romeo and Juliet and The Entertainer) at London's Garrick Theatre from October 2015 - November 2016.
Guest post by Gawain Kripke, Oxfam America’s Director of Policy, on Kentaro Toyama's book Geek Heresy.
I love my smart phone. It’s awesome and it makes me more awesome. I honestly think that my life is much better with it than without. It makes me a better worker – able to review documents, communicate with colleagues, keep projects moving smoothly even when I’m out of the office. It makes me a better citizen – I”m able to read news and events, can report emergencies and contribute to public safety and knowledge by feeding in through networks. I think I’m a better parent – or at least it makes parenting easier. All the logistics of picking up kids and changing schedules are greatly assisted by having my mobile phone. It’s not cool to say so, but I think my mobile phone is a fundamentally empowering technology that helps make me a better person and helps me live a better life.
So, why shouldn’t mobile phones do the same for other people, including poor ones? In researching this idea, I came across Kentaro Toyama. I called him up, and in a long conversation, he batted down my fumbling ideas effortlessly and gracefully. I didn’t know it at the time, but Toyama has emerged as a leading skeptic of technology-led concepts of development. He’s now published Geek Heresy, a book that is worth reading, both for proponents and skeptics of technology in development.
Economic transformation is necessary for growth that can lead to poverty reduction. However, economic transformation in low-income countries is changing as recent evidence suggests countries are running out of industrialization options much sooner than once expected. Is this a cause for concern? What does the past, present, and likely future of structural transformation look like? Read on to find out why leading economist Dani Rodrik is pessimistic and what some possible rays of light are.
Dani Rodrik was in town his week, and I attended a brilliant presentation at ODI. Very exciting. He’s been one of my heroes ever since I joined the aid and development crowd in the late 90s, when he was one of the few high profile economists to be arguing against the liberalizing market-good/state-bad tide on trade, investment and just about everything else. Dani doggedly and brilliantly made the case for the role of the state in intelligent industrial policy. But now he’s feeling pessimistic about the future (one discussant described it as ‘like your local priest losing his faith’).
The gloom arises from his analysis of the causes and consequences of premature industrialization. I blogged about his paper on this a few months ago, but here are some additional thoughts that emerged in the discussion. He’s also happy for you to nick his powerpoint.
Dani identified two fundamental engines of growth. The first is a ‘neoclassical engine’, consisting of a slow accumulation of human capital (eg skills), institutions and other ‘fundamental capabilities’. The second, which he ascribed to Arthur Lewis, is driven by structural differences within national economies – islands of modern, high productivity industry in a sea of traditional low productivity. Countries go through a ‘structural transformation’ when an increasing amount of the economy moves from the traditional to the modern sector, with a resulting leap in productivity leading to the kinds of stellar growth that has characterized take-off countries over the last 60 years.
Manufacturing has been key to that second driver. It is technologically dynamic, with technologies spreading rapidly across the world, allowing poor countries to hitch a ride on stuff invented elsewhere. It has absorbed lots of unskilled labour (unlike mining, for example). And since manufactures are tradable, countries can specialize and produce loads of a particular kind of goods, without flooding the domestic market and driving down prices.
But that very dynamism has produced diminishing returns in terms of growth and (especially) jobs. Countries are hitting a peak of manufacturing jobs earlier and earlier in their development process (see graph). And it could get much worse – just imagine the impact if/when garments, the classic job-creating first rung on the industrialization ladder, shift to automated production in the same way as vehicle production.
On a visit this week to the Japanese coastal area of Yuriage, Teerayut Horanont peered through glasses at the quiet landscape that gives way to the Pacific Ocean. He didn’t just see the landscape – he saw the town that once thrived there.
An augmented reality tool installed in the glasses provided a visual overlay of what the area looked like before the 2011 Great East Japan Earthquake and Tsunami that devastated Yuriage and many other coastal communities in Japan.
Sometimes the impacts of disasters seem difficult to predict, such as when the heavy snow that set off deadly avalanches in Afghanistan this winter also damaged transmission lines, disrupting the flow of electricity imported from Uzbekistan and Tajikistan and resulting in power outages in Kabul. Other times the consequences seem almost inevitable, for example the likelihood of a devastating earthquake in the Ganges Basin of India, Nepal and Bangladesh within our lifetime.
There are, however, tools and models that allow us to determine the potential impacts of a disaster before they happen, and provide decision-makers with information they can use to reduce the potential impact.