Brian Easton examines a new book that challenges how we need to think about technological innovation

This is a re-post of an article originally published on pundit.co.nz. It is here with permission.

Last week’s column mentioned the three 2024 Nobel laureates in economics. The column focused only on the 2012 book Why Nations Fail by Daron Acemoglu and James Robinson with little reference to Simon Johnson, although the three have worked closely together for about 30 years. Johnson published last year, with Acemoglu, a 599-page book: Power and Politics: Our Thousand-Year Struggle Over Technology and Prosperity.

Any book covering a millennium is going to be selective, with some of its examples contested. Nevertheless, this one’s basic thesis is uncontestable: technological innovation is not always beneficial and often favours the powerful.

Economics tends to treat technology as beneficial, probably because of Bob Solow’s finding some 70 years ago that it was not possible to explain most of (per capita) economic growth by additional capital. He labelled the gap – the coefficient of ignorance which explained 80 percent of rising labour productivity – ‘technological change’, saying it was ‘a shorthand expression for any kind of shift in the production function’ including ‘slowdowns, speedups, improvements in the education of the labour force, and all sorts of things’. When we are thinking about aggregate (market) GDP we should also include shifts into the market as when natural resources are depleted, subsistence farming becomes commercial farming and rising household productivity shifts housework and houseworkers into the market.

Lumping this miscellany into ‘technology’ is confusing. So to first principles. Joan Robinson defines technology as ‘blueprints’ – a description of how things can be done. In order to be of practical use, a blueprint has to be imbedded in an artefact (physical capital) or in how people do things (human capital). Not all discovered blueprints are adopted. Many are never used or are discarded because they do not contribute to profitability. (Their adoption by the non-market economy and society as a whole is even more mysterious.)

This focus on aggregate market output (GDP) plays down technology’s transformational role. Electricity and the internal combustion engine may have had major impacts on GDP, but their impacts on the lives we lead has been even more extraordinary. Without them we would be poorer, but we would also lead very different lives. Conversely fertility regulation technologies hardly merit measuring their impact on output, but they have transformed the lives of both women and men.

We tend to assume that if something contributes to aggregate output (GDP), it is beneficial to humankind. Of course that is not totally true – think of climate change, smoking and weapons – and economists have given much thought to explain when and why it is not. Economic ‘bads’ (and externalities) are a critical feature of economic analysis.

Acemoglu and Johnson are saying more. I skipped over how we identify the blueprints. Increasingly they are the result of major financial outlays. The evidence suggests that locating genuinely novel (commercial) technologies is becoming increasingly expensive – or as economists put it euphemistically, the ‘productivity of research is falling’. So who makes the investment in research decisions?

The book argues that the impact of new technologies on human welfare depends crucially on social choices about how those innovations are used. Those choices are usually determined by those who hold power. In recent decades the choices have been increasingly steered by tech companies and venture capitalists in terms of profitability rather than social wellbeing.

Thus the effort for new pharmaceuticals is towards those who can pay rather than maximum life enhancing, so we put less into researching ways of medication for those with high mortality and morbidity in poor economies. (A bizarre illustration was that American medicine was much slower to adopt lithium chloride for managing bipolar mood swings than European medicine because the chemical was not patentable so there was no commercial incentive to encourage American doctors to prescribe it.)

The book suggests that, in particular, currently digital technologies and artificial intelligence are increasing inequality while undermining democracy through excessive automation, mass data collection, and intrusive surveillance.

Acemoglu has done a lot of work on the impact of robots, pointing out that the new technologies aim to replace workers rather than complement them. That’s the way our system operates. The authors argue that democracies must ensure that the proceeds of technological waves are more generally shared among their populations. They say there are three things that need to be done.

First, the automatic technology-equals-progress narrative has to be challenged as a convenient myth propagated by a huge industry and its acolytes in government, the media and academia even though it is not always true.

Second, there is a need to cultivate and foster countervailing powers including civil society organisations, activists and trade unions.

Third, there is a need for technically informed policy proposals that supply a steady flow of ideas aimed at improving human wellbeing rather than exclusively targeting private profit.

The book also contains an interesting discussion on avoiding technologies which replace workers and devising ones which complement and empower them instead.

You may be surprised at how progressive (or impractical, if you are of a different political temperament) these Nobel laureates are. It is a reminder that the top of the economic profession reflects much wider political spectrum than the New Zealand one.

New Zealand economics is also imitative. Rather than adopting (or ignoring) the Acemoglu-Johnson-Robinson recommendations, New Zealand needs to apply them to local conditions. Since most – say, 99.7% – of the world’s research (blueprint generation) occurs overseas, our main task is to adapt what is available.

That does not mean we should do no research. Local research is a critical part of the process of effective importing and adapting new technologies. If, as a consequence, New Zealand researchers do some exceptional internationally innovative work, we are twice blessed.

This changes our research strategy. Instead of bewailing that New Zealand does not produce enough commercial blueprints, we need to evaluate it by how successful it is at importing and transferring the internationally generated blueprints here. (Medicine is an excellent example of our success at importing new technologies.) We need to move our approach from its (not very successful) narrow commercial focus to a whole-of-society approach.

While adapting we need to keep in mind the Acemoglu-Johnson reservation that the new inventions are biased towards some groups over others, and we may want to direct them differently.

Our public funding is far too centralised. Why Nations Fail argued that it was the decentralisation in an inclusive society which enabled effective innovation. We have not reached the stage where Stalin’s directive to pursue Lysenkoism and ignore Darwinism set back Soviet biology for generations. We came close to it when the Rogernomes closed down empirical economics research because its results disagreed with them. It has crippled New Zealand economics to this day. Outsiders would be surprised how little of our economic policy public discussion is evidenced based.

Each year the Taxpayers’ Union highlights bizarre ‘research’ grants from the Royal Society’s Marsden Fund. They would be amusing if they were not diverting funds from more valuable activities. They are not at the Lysenkoism level, but suggest that some of members of the grant panels are chosen for their ideology rather than competence. My guess is that there are objectively worthier projects among those that the ideological and non-competent rejected.

Power and Politics: Our Thousand-Year Struggle Over Technology and Prosperity challenges us to think more carefully and creatively about technology policy. It is very unlikely there is any grant funding to do this.

*Brian Easton, an independent scholar, is an economist, social statistician, public policy analyst and historian. He was the Listener economic columnist from 1978 to 2014. This is a re-post of an article originally published on pundit.co.nz. It is here with permission.