Carl Benedikt Frey, economist and economic historian at Oxford University, will be known to most of us. At least his warning on the disruptive impact of digitization on the job market is well-known to all of us: The publication The Future of Employment as of September 2013 (co-author: Michael Osborne) sent shockwaves around the world. This study examines about 700 job profiles and concludes that 47 percent of today’s jobs can or could be automated in the foreseeable future. This study is one of the most cited scientific papers when it comes to the discussion of the job market in the digital economy.

In his most recent publication Carl Benedikt Frey takes a closer look at the dynamics of innovation, disruption and the conditions thereof. Title of the book: “The Technology Trap. Capital, Labor, and Power in the Age of Automation”. Herein, the author starts out from the thesis published in 2013 and, as an economist, examines in more detail the effects on the labour market and the economy. The key focus of the book, however, is placed on a different, highly intriguing question. He takes a look at the history of innovation. First of all, he notes that for much of human and economic history, the ruling elite has slowed down rather than encouraged technological progress. The reason why the First Industrial Revolution was able to take off in England in the late 18th century can be explained by a special historical constellation. In short: The balance of power had shifted in such a way that the ruling elite gained an interest in the Industrial Revolution, namely: Securing England’s position as a major trading power, that is in competition with other (European) nations.

From an economist’s viewpoint, it is easy to argue that technological progress increases productivity and wealth. Actually, per capita income in human history doubled every 6,000 years before 1750. This changes dramatically after the Industrial Revolution: After 1750 per capita income doubled every 50 years. This has even accelerated further. Nevertheless, these growth rates refer to the society as a whole. On an individual level there are always losers in times of technological progress: When mechanical looms were introduced, it hit the weavers; when electric street lighting was introduced, the lamplighters were affected. This led to uprisings, protests, riots. The Luddites riots in the England during the Industrial Revolution are well known. And it is precisely due to the risk of social unrest, that the ruling elite was generally hostile to technological progress; some inventors were even sentenced to death in order to prevent dissemination of their ideas.

The author Frey walks us through the history of economics and technology and provides numerous examples from different epochs and regions. Take the example during the Habsburg Empire: “To escape the threat from below, in 1802 Francis I blocked the construction of new factories in Vienna and prohibited the import and introduction of new machines until 1811. When plans for the construction of a steam railway were presented to him, he reacted: ‘No, no, I don’t want to have anything to do with it, so that the revolution doesn’t come into the country.’ Consequently, railway carriages in the Habsburg Empire were drawn by horses for a long time”. (page 85) Example Russia: “Tsar Nicholas I feared in a similar way that the expansion of the mechanised factory in Russia might undermine his leadership. To slow down the pace of progress, industrial exhibitions were banned.” (p. 85)

Example Third Reich: “the return of the pre-industrial policy, which tried to limit the use of machines. In Gdansk, where the Nazi party won over 50 percent of the vote that year, such efforts became a major priority. (p. 12). Example Ottoman Empire: “Fearing that an educated population would undermine his leadership, Sultan Bayezid II issued an edict in 1485 banning pressure in the Ottoman Empire, with dire and long-lasting consequences for literacy and economic growth in the region. (p. 17)

Nevertheless, today’s mass affluence (as compared to a rich minority) is not solely attributable to the Industrial Revolution alone. Frey delves very deeply into economic/political history along the timeline. He looks especially at questions such as: Who exactly benefited from technological progress? Who turned out a loser? What was the response of politics to the losers’ resistance? We tend to forget that the First Industrial Revolution in England created many losers at the beginning, hundreds of thousands, even millions of losers:

The mechanical looms and other machines destroyed the income opportunities of craftsmen, and jobs were lost for the middle class of the time. Actually, mechanical looms were specifically designed for children, who could do the work at a fraction of the cost of an adult. Moreover, children had no negotiating power. Despite the increase in production, real income therefore stagnated or even fell. It was to take about 2 generations (sic!) until conditions improved. Mass prosperity in the course of the Industrial Revolution(s) was only the result of a transformation of the economic system: the welfare state was created, the education system enabled participation in the progress in productivity that mechanisation brought with it.

Frey points out that the situation is similar today; Frey is, however, less optimistic about the creation of new well-paid jobs in the future. The author points out, that automation due to the computer revolution wiped away already hundreds of thousands of middle class jobs. Frey soberly states: “Only half of Americans born in 1980 are economically better off than their parents, compared to 90 percent of those born in 1940” (p. 10) .

Frey is convinced: Just as in the days of the First Industrial Revolution, in the long term (sic!) the majority may benefit from technological digital progress in the form of greater prosperity. It will be decisive, however, how fast the workforce can change from a job that disappears due to digitization. It may be even more decisive, that politics finds an answer for losers of structural change. This sounds like a no-brainer, you may think. Sadly, politicians struggle to find adequate answers. In the worst case this leads to resistance: “According to a Pew Research Center survey, 85 percent of Americans now favor policies to restrict the rise of the robots.” (p. ix)

Enjoy the good read!

“The Technology Trap. Capital, Labor, and Power in the Age of Automation” by Carl Benedikt Frey, Princeton University Press, 370 pages.

Sebastian Zang
Author

The author is a manager in the software industry with international expertise: Authorized officer at one of the large consulting firms - Responsible for setting up an IT development center at the Bangalore offshore location - Director M&A at a software company in Berlin.