Reflections on whether innovation really creates jobs
When I was studying to be a Chartered Accountant a long time ago in London, the economics teacher explained that North Sea revenue was actually bad for the UK economy. His reasoning was that because this revenue was so significant there was no incentive for the rest of the economy to be efficient and that, once this income started disappearing, the UK would be left with an inefficient economy. This seemed counter-intuitive to me at the time. How could it be negative to learn lots of money? However if we look at the situation of Saudi Arabia today or a lottery winner who spends half his money on wine and women and squanders the rest, perhaps there is some truth in the argument.
Similarly, the idea that innovation can actually create jobs appears counter-intuitive in the same way. Surely the whole function of innovation is to create a more efficient system which can be performed by fewer people? Such an argument is simplistic and merits more serious reflection. So let’s have a look at some examples of innovation, both past and present, to draw our own conclusions.
Two of the earliest examples of innovation are fire and the wheel. No one really knows when fire was first discovered but it probably became common several hundred thousand years ago and represents a key turning point in human history providing protection from the cold and other dangers as well as a safer way of preparing food. Subsequently it also facilitated the forging of metals and the creation of a whole variety of tools. It is therefore clear that fire not only increased the longevity of man but also led to the creation of a whole variety of new tasks and employment.
The wheel was invented much later, probably in Mesopotamia about five thousand years ago. Its first use was in pottery thereby developing a whole new array of creative and practical jobs. Later on it was used in transportation and many other functions, transforming our lives and enabling the creation of an inestimable number of jobs in travel, construction, architecture and numerous other sectors. Like the discovery of fire, the invention of the wheel was a truly transformative innovation whose impact on life has been enormous in so many ways. But mankind was starting off from a very low technological level during this period and progress was easy.
As we move closer to modern times and pass through the innovation stifling Dark Ages, we arrive at the Rennaissance which was one of the most innovative periods in history. The first rudimentary steam engine was created by Thomas Savery, the first real telescope by Galileo and it can even be argued that Leonard da Vinci invented the first helicopter and submarine. But the most life-transforming invention was undoubtedly Gutenberg’s printing press. For the first time in history, the reading of books was available to ordinary people and not just scholars and clergymen. The future impact of this invention on not just education and culture but also politics was huge. And with the printing-press came a new industry creating numerous jobs and also facilitating access to new jobs for a whole generation of newly educated people.
Let us continue our time travel to arrive at the Industrial Revolution in the latter part of the 18th century. This revolution can be said to originate in my home town of Manchester, a city that has had to wait two hundred years to rediscover fame with its soccer teams and music groups. Up till now I believe that innovation has been a wholly positive story enabling humanity to live better, longer and more richly. The industrial revolution, however, transformed the manufacturing process from one performed manually to one performed by machines. Whilst a new industry was created in the construction and maintenance of these machines, vast numbers of jobs in the textile and other sectors were eliminated or at best reduced by the arrival of this new technology. The “Luddites” recognised this phenomenon and set about destroying the machines but discovered quickly that it is very difficult to turn back the clock of innovation. As the revolution progressed, new industries and jobs were created in such areas as transportation, metallurgy, chemicals and mining, all of which served to improve the lives of many people, but perhaps for the first time we have an example of innovation as a “double-edged sword”.
Moving to more recent times and to the technological revolution, I believe that there have been, in very general terms, three waves of innovation. The first wave arrived with Internet or more properly the world wide web. Until the arrival of the latter, Internet was reserved for the academic and military elite in very much the same way as the printed word pre-Gutenburg. Tim Berners-Lee can be regarded as very much the Gutenberg of his time and I would argue that his impact has probably been even greater. For any young or middle-aged person, and probably for numerous senior citizens, it would be impossible to live without Internet. And if we add to that the creation of wi-fi networks and smartphones it would become even more difficult. There is the oft-quoted example of the young boy in his bedroom on Internet when the wi-fi system breaks down. He goes downstairs, comes across his parent and comments to himself “They seem to be nice people!”.
Whilst the “age of communication” has actually become the age of non-communication, with people living increasingly in a virtual world, the benefits of these modern tools are enormous if we know how to control them properly. There can be no doubt that Bill Gates, Steve Jobs, Time Berners-Lee and many other people of their generation have been not only great innovators but also successful job creators. One prominent example is the iphone which revolutionised the mobile telephone industry just as the first Macintosh did with personal computers. The iPhone also created a whole new industry in the development of applications for its phones. Whilst not all of them are useful or practical, the industry has certainly created jobs.
But as we move forward to the second wave of the technological revolution, the correlation between innovation and job creation becomes as uncertain as it was during the Industrial Revolution. To stay with Apple, iTunes brought music to a wider audience and in a more accessible way, but it also had a tremendously negative effect on the music industry and the people employed therein. Other salient examples are Amazon and airbnb which are brilliant platforms but with a definite price to pay for employment in the retail and hospitality sectors. I believe that these two companies and others like them, based as they are on the principle of “disintermediation”, have an overall negative impact on jobs. For ever person that buys additional items through Amazon or travels more often using airbnb, thereby creating extra wealth, there are a larger number of victims losing out on sales in their local shop or hotel. What is sure, however, is that both these companies faciliate the life of their users who will spend more online, but most of the newly created jobs will be overseas rather than in local communities.
And recently we’ve arrived at technology version 3 as Moore’s law runs rampant and creates such concepts as “disruption”, “uberisation” and “the gig economy”. In today’s world, for a technology start-up to have any chance of success it must prove to investors either that it can generate a significant number of users to generate advertising revenue or that it’s technology is “disruptive”. Many years ago when Air France was always on strike, I was held up at Paris airport for several hours because the ground staff at my destination in Nice were occupying the runway. The company was providing no information or apology for the delay. I started to complain to the other passengers that our treatment was incorrect and that we should stand up for our rights and sign a petition. My raised voice finally made an Air France representative appear out of nowhere not to apologise but to accuse me of being a “disruptive element”. He even called a policeman and, when I suggested to the latter that the police should be dealing with the striking employees occupying the runway in Nice and not with a justifiably frustrated passenger, he agreed with me. Nevertheless, Air France made me sign a form promising not to be a “disruptive passenger” if they deigned to let me board the next flight and that I would not pursue my petition once on board!
Coloured by this experience, I was always under the understanding that “disruptive” was a bad thing, something to be avoided at all costs. But apparently technology investors nowadays are actually looking for disruptive people and even paying them lots of money to disrupt. Where were these people all those years ago during the Air France strike?! In fact I posit that this current usage of the word disruptive is a euphemism for job destruction. For me Uber is a prime example of this and to such a point that it’s actually passed into everyday speech in the form of “uberisation”. Uber competes with qualified taxi drivers who have often spent much time and money qualifying for their jobs. Its own drivers have limited training, no or little social protection and their pay fluctuates according to the whims of the company directors and their algorithms. And even if they do make a living, the declared objective of the company is to eliminate them with driverless cars as soon as possible.
Consequently, I believe that the latest phase of technology and its ever-increasing pace of change is indeed disruptive and not in a positive sense. Innovation is becoming increasingly disturbing for a lot of people who fear for their jobs and wonder if their children, if they can afford any, will have employment of any kind when they leave education. Jobs have become increasingly precarious and short-term with signficant social and political consequences which are beginning to be diplayed in a very tangible way with events such as Brexit and the election of Donald Trump. Today’s innovation is a long way from Gutenberg, Galileo and even Gates. Until innovators, and especially the investors who finance them, take into account the human dimension and not just the discounted cash-flow, the world will become a more and not less dangerous place.
Today computers can beat world champions at chess, Go and even poker. Artificial intelligence has reached a point where bots are literally fighting each other on such websites as Wikipedia to amend each other’s amendments. It’s got to the stage where Isaac Asimov’s three laws of robotics, written in the world of science fiction, are potentially being overturned in the world of reality. Stephen Hawking, the most famous and perhaps the most respected living scientist, has even said “The development of full artificial intelligence could spell the end of the human race.” In conclusion, therefore, innovation does not seem to be preoccupied with job creation at the moment and many people far more intelligent than me seem to share my concerns.