Divisions emerge over effect of digital disruption

Last updated: January 24, 2014 5:42 pm

Divisions emerge over effect of digital disruption

By Andrew Hill in Davos

Sitting alongside his counterparts fromYahoo, AT&T, BT Group and Cisco Systems, Marc Benioff, chief executive ofSalesforce.com, launched the World Economic Forum this week with the bull case for the technology revolution.

“This panel is usually Nobel laureate [economists],” he told the opening session in Davos on Wednesday. “We took their spot this year because technology is really important and there’s never been a more exciting, more fun, more energetic time.”

The economists have struck back, however, pointing out that the many opportunities presented by digital disruption of companies and communities also carry with them complex political, economic and social risks.

Lawrence Summers, the economist and former US Treasury secretary, said on Friday that the advance of technology “was one of the greatest things that will ever happen to humanity”, but it was not an “unalloyed good”. The former economic adviser to President Obama likened the benefits – and the disruption – to those brought by the industrial revolution, but warned that the world lacked the kind of political leaders who helped shape the public policy of the late 19th and early 20th century. “We don’t yet have the Gladstone, the Teddy Roosevelt, or the Bismarck of the technology era,” he said.

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At the heart of these concerns is uncertainty about the impact of technological change on jobs – shared by some technology executives, despite their optimism about the eventual benefits. On Thursday, in another Davos briefing, Eric Schmidt, chairman of Google, warned that automation could wipe out a broad range of jobs describing it as “a race between people and computers [that] people need to win”.

Advances in artificial intelligence could put at risk white-collar jobs in areas such as research that were previously less threatened by automation, with disruption spreading from manufacturing to service industries.

The predictive power of the Davos elite on technology is flawed. As Davos veteran Maurice Lévy, chief executive of Publicis, the advertising agency, has pointed out this week, while everybody at the forum now carries a smartphone, tablet or both, 10 years ago delegates were handed Palm Pilots, while more recently it was the virtual community Second Life, now a niche enthusiasm, which was expected to revolutionise business and society.

It is also possible that many new jobs will be created in technology areas that have not yet developed. Economists have pointed out, too, that recent technological changes do not seem to be feeding through to productivity, which stopped improving in most countries last year. One possible explanation is that innovation is not increasing efficiency in the way technology bulls such as Mr Benioff predict it should.

At the same time, most individuals remain optimistic about the impact of technology on their lives. A survey carried out for Microsoft, and released on Friday, shows a majority of people, particularly in the developing countries, believe personal technology will improve economic wellbeing. Nine out of 10 people in developing countries think such technology is “making the world a better place” according to the survey. In China, Mexico, Russia and India more than 80 per cent believe it helps bridge economic gaps. In developed countries, however, 41 per cent of people saw personal technology as a barrier to economic opportunity. According to the latest Edelman Trust Barometer, released this week, people trust technology companies more than those in any other sector.

Even so, policy makers and analysts gathered in Davos remain concerned about the potentially negative implications for poorer members of the community, if the benefits of technology are not equally spread. They also warn that government is unequipped to step in and protect them. Their fear is that this, in turn, could add to income inequality and provoke a backlash against wealthy technology entrepreneurs.

“We’re innovating in a world that doesn’t have a perfect map, so we’re going to have to do it with empathy and humanity,” said one Nobel Prize-winning economist at a private Davos session this week. A former US presidential economic adviser pointed out at the same session that there was a “constant risk” that the political system would not provide policies to protect poorer citizens against the consequences of digitisation and automation.

Mr Schmidt said this week governments had to encourage the formation of rapidly growing “gazelle” companies and provide incentives for them to scale up and create new jobs. Bill McDermott, co-chief executive of SAP, the enterprise software group, said on Friday that “innovation is key to creating jobs and wealth and opportunity”, while technological tools would help improve transparency and efficiency in the public sector.

Prof Summers himself recommended some combination of policies on education, taxation and social protection to help cushion the effects of the technology revolution – but he conceded that it was far easier to lay out such a prescription than to implement it.