Secretary’s Address to the Sydney Institute – Technological change: Making the most of the technological revolution

Secretary’s Address to the Sydney Institute – Technological change: Making the most of the technological revolution

PM&C Who We Are The Secretary
Wednesday, 22 November 2017

Dr Martin Parkinson AC PSM

Martin Parkinson sitting in his office.

Introduction

I begin by acknowledging the Gadigal people of the Eora nation, Traditional Owners of the land on which we gather tonight. I pay my respects to their elders, past and present.

Thank you for your warm welcome. Thank you Gerard and Anne for inviting me to speak.

The Sydney Institute is 28 years young, and I want to acknowledge the extraordinary contribution it has made in supporting national debate over this period.

Last time I spoke to you, it was as head of the Treasury. My subject was the challenges of fiscal sustainability. [1]

Tonight I want to focus on the profound impacts of the current wave of technological disruption.

My message is very simple.

We are on the cusp of unprecedented technological change. Done right, this technological revolution will drive the next wave of jobs, and growth in productivity and living standards.  Harnessing this change to build and sustain a just and productive Australia is one of the fundamental challenges for Australia’s leadership – for government and the public service, and for business and the community.

Technological disruption is relatively new

Let me begin by looking back.

In the broad sweep of history, technological disruption is relatively new.

For the vast majority of human generations, people would never have expected technology to improve living standards appreciably over their lifetimes—and certainly not at the rate we see today.

In the 3000 years before the industrial revolution, income per capita barely moved.

Yet since the 1800s, per capita income in advanced economies has risen more than 3,000 per cent. [2]

Technology – advances in manufacturing, machinery, medical science, transport and communications – has revolutionised our lives, driving extraordinary productivity growth.

As a direct result, we live longer, we’re healthier, and we’re richer. And (even if it may not feel like it), we work less: the average working week in highly industrialized western economies has roughly halved since the 19th century, from around 60 hours in 1870 to about 30 hours now.  [3]

But change is a continuous process, even if it has fits and starts.

For example, it’s difficult to imagine life without smartphones, yes this ubiquitous device the Iphone is just 10 years old. This one piece of technology has changed the way we shop, communicate and even conduct political debate.

Industries are being disrupted. Witness the impact of Uber on the taxi industry. Or the stranding of landline telecoms in the face of the rapid proliferation of internet, cell phones and wifi.

Technology has significantly reduced the costs to produce, market and distribute many goods and services; it has given consumers incredible choice; and has increased supply by allowing people to market their own resources – whether it’s a room in their house or a ride in their car.

Technology can also make it easier to start a new business, increasing competition across many markets. The late William Baumol is famous for his theory that markets could be contestable even with only one provider, so long as barriers to entry are absolutely free and exit is absolutely costless [4]. Today, business start-up costs are lower than ever.

Technology has empowered people too. Inventions like cochlear implants and artificial limbs mean people with disabilities can now participate more fully in society. Technology is giving a platform to people who didn’t previously have a voice.

Of course, the industrial revolution was not just a technological revolution. Culture and institutions matter. Indeed, the economic historian Joel Moykr [5] says the industrial revolution happened in Europe because of the culture of ideas fostered by debate and diversity of thought.

Perhaps this is best illustrated by China’s recent past: not until China opened up to market forces in the 1970s was it able to make proper use of modern industrial technology, generating growth rates averaging 9.7 per cent a year since 1980. [6]

And returning to my core point: we are on the cusp of a further period of technological disruption, which Klaus Schwab of the World Economic Forum has called the fourth industrial revolution [7].

Technologies like artificial intelligence, robotisation and blockchain will revolutionise the way societies create and distribute wealth. In other words, we ain’t seen nothing yet.

As the Chief Scientist Alan Finkel has argued, reading science fiction is about your best guide to this future – not to predict what will happen, but to give us the creativity to imagine what could be. [8]

This is our opportunity to drive a new wave of national productivity. Realising this opportunity, and doing it on our terms to sustain a just and productive Australia, is our challenge.

This is a shared challenge for Australia’s leadership – across political, public service, business and community sectors. It’s time for us to talk about it.

The challenge of change

Make no mistake: no fundamental change to the economy and society of the sort we envisage is easy or uncontested. Indeed the fourth industrial revolution will pose fundamental challenges.

We need to be unashamedly ambitious about this technological revolution – about the opportunities it will provides to drive economic growth and new jobs, and improve our life choices.

But we also need to ensure this is a very human revolution, one consistent with enduring Australian values.

The first challenge is that technology will continue to have significant impacts on the labour market. This is an economist’s way of saying that technology will profoundly change the sort of jobs available to us and our kids, both what we do and how much we get paid.

Undoubtedly there will be massive new opportunities – new occupations, industries and increased options in existing industries. But despite this, people are also nervous about some of the consequences. So let’s speak honestly about the range of ways some workers can be worse off.

Some may be unable to compete with technology and their jobs may be made ‘technologically redundant’.

Other workers could see flat wage growth – whether because they remain in jobs where technology does not expand the size of their market (for example, industries where falling prices don’t increase demand) or simply because surplus workers released by machines now compete for their job. Indeed, the question of whether technology will ultimately be disinflationary will be with us for some time.

There are also concerns that the security of a full-time job may be replaced by a series of one-off jobs in the gig economy, which may require a number of changes in areas like retirement incomes policy and the way financial institutions assess credit, especially for housing.

None of these is an insurmountable challenge if we recognise the human stories behind economic terms. Having been a Treasury official during the early 1990s, I am acutely aware that many of the people, largely middle-aged men, made redundant in our last recession never found stable, full-time jobs again.

Equally, these changes bring massive opportunities. It’s important to challenge dystopian fear-mongering about the future.

Fundamentally, a positive technological shock lifts national income. How it gets distributed is a choice we make as a society.

Besides, technology tends to eliminate tasks, not whole jobs. So long as workers can adapt to the new technology, they will be better off.

Machines now count and dispense money at banks, but there are more bank tellers in the US now than there were 40 years ago; [9] their jobs are about customer service and client relationships.

Indeed, it’s worth making the point that in Australia to date:

  • There is no evidence that technology has reduced the total number of available jobs [10]. On the contrary. We are generating almost 7,000 net new jobs a week [11].
  • There is also little evidence that technology has led to increased casualization, which has remained around 20 per cent for the last decade. [12].

So, is there a risk that technology can drive inequality?

Since the 1980s, incomes in poor countries have been rising, contributing to the world becoming more equal.

But there is rising inequality inside many advanced countries. [13]

Some of this does seem due to the impact of new technologies that have allowed emerging countries to export goods previously made in advanced countries. New telecom technologies that allow services to move across borders may now be doing the same to some middle-skilled workers.

And, as I mentioned, there is the risk that the fourth industrial revolution will sharpen inequality between those who can and those who can’t harness new technology in their lives and jobs.

We’re also yet to see if the mega tech firms, like Amazon and Ali Baba, Apple and Google, will become the ‘robber barons’ of the last century – although I’d like to think that modern regulatory institutions significantly reduce this risk.

But again, I caution against dystopian predictions that technology will make us redundant or society more unequal or monopolistic.

We can also imagine the intellectual property of mega platforms being replicated and bettered by new competitors, and the digital economy providing new opportunities for workers. 

Here I want to make quite clear that, unlike comparable economies, there is no evidence of marked rises in income inequality in Australia, though rising house prices have changed the distribution of wealth. Since 1986, income growth has averaged 50 per cent and has been broadly similar across all household quintiles, in contrast to, say, the US where household incomes have barely grown, other than for those at the very top of the income distribution.

Demand from Asia boosted demand for jobs across the entire skills spectrum in Australia, first in mining and energy, then construction, and now in services. And our education and skills systems do a reasonable job of channelling workers into the right jobs. Our social safety nets are well-placed to help those who need temporary support through a period of adjustment, or require more permanent assistance. But we need to constantly ensure these systems remain fit-for-purpose.

The third challenge we face is broader: technology is changing the nature of political and public debate in ways that are difficult to respond to or anticipate.

Technology can empower people without a voice. This is undoubtedly a good thing. But while social media offers a tremendous platform to build support for campaigns, it’s hardly conducive to considered, respectful, and balanced discussion about complex issues.

It’s unfair to blame technology for the modern era of ‘reform malaise’ across many advanced economies. But equally, many liberal democracies are struggling to take tough but necessary decisions in a social media age. The ability to create communities of interest defined only by what they are against has made thoughtful policy development considerably harder.

Public institutions need to master these new platforms to build public trust in their competence and integrity, and to generate better solutions and public buy-in for complex problems.

We’ve got a way to go.

Implications for Australia

All of this shows the enormous opportunities, and the challenges, that the new wave of technological revolution presents to Australia.

I want to highlight three critical areas of focus for Australia’s collective leadership if we are to sustain a more just and productive Australia.

First, we need to recognise that over the next quarter century, technology will be perhaps the most significant driver of jobs, national productivity and living standards. To thrive in this new world, Australian business has to be smart, innovative, and ambitious. As each industry faces its own ‘Kodak moment’, none can rest on past success.

The same goes for government and the public service. Rather than seeking to slow the adoption of technological changes, we need to disperse it faster. Key to this is maintaining openness – to trade, to investment and high skilled foreign workers.

As a country of over 24 million [14] in a world of 7.5 billion, [15] most of our technology is (and will continue to be) imported. Governments have a role in helping citizens take advantage: with access to infrastructure like high speed internet and data and cyber security capabilities.

Needless to say, our regulatory structures need to spread technological opportunities while making the technological revolution one that works for Australians. Take the ‘gig economy’.

Best estimates suggest there may be as few as 100,000 Australians currently doing gig jobs with online platforms like Uber and Airtasker. [16]

Those numbers are likely to grow. The newness of these platforms means we’re still grappling with their implications. No doubt they’ve increased competition, driving down prices and increasing options for consumers, but many workers in traditional jobs fear what their rise means for their own wages and conditions.

Uber has recently been banned in London; AirBnB is banned in New York. In Australia the Fair Work Ombudsman is investigating Uber to see whether their workers should be subject to the same wage regulations as traditional employees.

We should scrutinise carefully regulation that tend to restrict technological take-up. In fact technologies themselves may solve some of the reasons for the regulation, such as service quality or safety.

But equally, protections for workers’ conditions are important manifestations of Australian values. The challenge is to ensure they don’t stop new ways to provide entry-level work for those who might otherwise miss out.

Over the next 25 years, we will also need to fundamentally transform the way government does business, to fuel productivity and innovation in high-growth areas like health, education and social services.

Federal, state and local public services employ some 16.1 % of the workforce (nearly 2 million workers), and are responsible for 35 % of GDP. Even marginal improvements in productivity and outcomes will have a significant impact on national productivity.

Critical to this is making better use of data and more creative use of digital platforms.

That means investing upfront in systems and capability. Governments hold voluminous amounts of data that we need to use better to support smarter and more targeted policy, services and regulations.

Yet as long as citizens are more willing to share personal information with Facebook than with government, we have our work cut out to earn trust in how effectively we use the data we hold.

At the same time as unleashing opportunity, there is an abiding responsibility for Australia’s collective leadership to ensure change doesn’t fracture the enduring social compact that underpins Australian democracy.

We can’t afford to leave people behind.

Practically, this means supporting an education and skills system that helps workers use technology rather than be replaced by it.

Perhaps this means more continuous, life-long learning. Probably it means ‘being more human,’ with more abstract, creative thinking and inter-personal contact, less knowledge and rote learning that robots can do—using information rather than compiling it. But certainly it means a high quality education system available to all, and one which is responsive to the changing needs of the economy and society. Not either/or, but both.

And we need particular support for those left out—a challenge for our tax and transfer system to provide adequate incomes (including in retirement), while maintaining incentives to participate.

Finally, governments and other institutions need to earn trust in a new, digital world. This topic deserves a speech of its own, but it’s worth noting that earning trust requires institutions to demonstrate competence and integrity; both real impact and evident beneficial intent. Results matter: we need to rise to the challenges I’ve described tonight.

Conclusion

I want to finish on a positive note.

Back in the 1870s, US newspapers were party political and full of rhetoric. But technology helped moderate that by improving the productivity of printing. As the price of paper fell, competition increased and became more responsive to what readers wanted compared to what the owners wanted to produce. Newspapers became more informative and independent. Technology effectively helped break control over information, thus helping to limit ‘the corruption of the gilded age.’ [17]

Part of the disenchantment people feel with liberal democracy today may be similar. Technology has driven down the cost of information, increasing diversity of opinion even further. While this freedom may make policy harder—herding cats comes to mind—we should also cherish it as something fundamental to our national values. Not all countries do.

We should not be fearful of change, but hopeful about what it can bring, and how we can shape it to strengthen our nation’s best qualities and highest aspirations.

[End]


[2] Deirdre Nansen McCloskey, Manifesto for a New American Liberalism, or How to be a Humane Libertarian, 2017

[3] Maddison, A. The World Economy: A Millennial Perspective, OECD 2001.

[4] Baumol, W. Contestable Markets: An Uprising in the Theory of Industry Structure, The American Economic Review, March 1982.

[5] Mokyr, J. A Culture of Growth: The Origins of the Modern Economy, Princeton University Press, 2016.

[6] IMF World Economic Outlook, October 2017.

[7] Klaus Schwab, The Fourth Industrial Revolution, 2016.

[9] James Bessen, Toil and Technology, Finance and Development, Vol. 52, No. 1, 2015.

[10] Borland and Coelli, Are robots taking our jobs? University of Melbourne, August 2017.

[11] http://www.abs.gov.au/AUSSTATS/abs@.nsf/DetailsPage/6202.0Oct%202017?OpenDocument

[16] https://www.superannuation.asn.au/ArticleDocuments/359/1709_Superannuation_and_the_Changing_Nature_of_Work.pdf.aspx and Deloitte Access Economics, Developments in the collaborative economy in NSW, 2016.

[17]  Gentzkow M, Glaeser E, Goldin C. The Rise of the Fourth Estate: How Newspapers Became Informative and Why It Mattered. In: Corruption and Reform. University of Chicago Press ; 2006. pp. 187-230.