Friday 23 August 2019

Digital Economy

What does the digital future have in store for us? The suggested visions alternately veer wildly between a dystopian and a utopian future. Will robots take over the world? Will this give rise to widespread unemployment, or will it finally free us from the heavy burden of labour? When seen from this perspective, the impact of digitisation on our economy is sexy, because it is spectacular. It also paves the way for visionaries whose praise of the digital future effortlessly segues into arguments in favour of eliminating the cumbersome institutions of the welfare state. The reality is much more prosaic, however: the digital ‘revolution’ does not mean that robots will take over the world. What it does do, however, is highlight conflicts that never really went away. There are three especially worrying dangers. Firstly, this will only serve to increase polarisation on the labour market. New technologies enable us to entrust a growing number of routine tasks to robots and computers. This mainly includes tasks that are carried out in the ‘middle segment’ of the labour market, by medium-skilled workers and employees with a modest salary. Investing in the kind of technology that replaces this type of job is therefore a worthwhile investment for companies. Their routine-based character means the development of labour-replacing technology is feasible. At the same time, the modest wages associated with these jobs means it is also worth the company’s while to invest in this kind of technology for these jobs. As a result, the middle segment in the labour market is gradually slimmed down. This does not mean that the risk of widespread unemployment has increased, however. The jobs that disappear on this level are more than amply offset by new jobs at the top and bottom of the labour market, by jobs that are not that easy to automate or that are too cheap to make the investment in labour-replacing technology worthwhile. The labour market is becoming polarised. There is no threat of widespread unemployment. The real problem here is the increasing inequality in terms of salaries and labour protection, which in turn demonstrates the need for a better framework to protect the weaker workforce.

The second danger is closely related to this. In practice, the technological breakthroughs that make us believe in a wondrous new world are used to better monitor, supervise and control labourers in the workplace. It is not the actual technology that is belittling and grinding down the human mind. Instead, the ruthless quest for ‘efficiency’ and profit turns people into nothing more than a cost centre that can be better managed using technology. Here again, there is a risk of polarisation, between those who think that the digital revolution will create more freedom on the job and those for whom the last bit of autonomy will be effectively snuffed out. The power will shift even more from the employee to the company.

This strengthened dominant position is also apparent in the third danger. The output of our economy is initially divided between ‘labour’ (in the form of wages and social security contributions) and capital (in the form of company profits and dividends to shareholders). The state then withholds taxes on these earnings to assure public services. For many decades, people assumed that the division between the two factors, i.e., ‘labour’ and ‘capital’, was stable. But this is no longer the case. Our western, post-industrial society has experienced a structural shift. Today, less of the added value that we create is now going to ‘labour’ with more going to ‘capital’. Company profits are increasing at the detriment of wages and social security contributions. The digital revolution has increased the importance of labour-replacing investments, undermined the bargaining position of employees and is used to further chip away at the labour and salary conditions at the bottom end of the labour market, thereby strengthening the trend: companies reap the fruit of the digital revolution, the workers are left empty-handed.

How should we adapt our tax rules, given this shift in the distribution of added value from labour to capital? How can we guarantee the autonomy and job security of employees in weaker positions on the labour market? How can we avoid that job polarisation gives rise to social polarisation? We should not be worried that robots will take over the world. Instead, we should make sure that the digital disruption does not cement an imbalance of power.

Matthias Somers
Collaborateur scientifique, Think Tank Minerva