Mission

In May 2019 Brookings and the Chumir Foundation for Ethics in Leadership published a report entitled Productive Equity: Technology and the Twin Challenges of Reviving Productivity and Reducing Inequality.. This joint project was designed to test certain hypotheses summarized below with the intention of contributing to an informed and constructive dialogue and policy response on a condition that is part of considerable malaise seen in a great many communities around the world.

Scope and Agenda

Over years, even decades, major economies are virtually all experiencing slow growth in aggregate productivity, investment and output. Concurrently, they are experiencing strikingly uneven income distribution, beyond differentials that reward performance. Socio-political divisiveness and, compared with more even incomes, reduced demand result. This performance is occurring despite significantly productive new technological developments that should fuel a boom. Instead, new technology and international trade are increasingly seen as costing jobs in developed countries, not as a source of improved living standards they have ultimately been, displacing less productive jobs with higher value activity. To date, replacement employment and higher value opportunities have generated net new jobs and higher income activities, although at a decreasing margin of net increase.

Research undertaken as part of this project confirms the hypothesis that primarily technology, but also trade, are proximate visible triggers of the output and distribution consequences – however, the real determinants of poorer levels of investment, aggregate productivity, output and more uneven income distribution over recent periods are public policies and market conditions in the context of which the technology is deployed.

Further, in an important conclusion that differs from much traditional literature on this topic, both the unfavorable production and distribution impacts are seen as consequences of largely the same policies and conditions. The current results are not the inevitable result of the technology.

If policies and conditions were performing as a model? competitive economy would, the dynamics that serve the public interest in living standards would operate along these lines:

• the focus of R&D investment,
• the random timing of discoveries,
• their inherent productivity enhancement,
• their dissemination or containment by competitive conditions,
• legal provisions (i.e. anti-trust enforcement and intellectual property rules and practices impact market power, domestic and international, increasingly affected by global firms controlling dissemination); and
• government-supported more basic research (declining in relative importance) versus private sector product/service development emphasis all influence the affects of technology.

Overall productivity growth, its timing and the distribution of the gains are all impacted by these variables.

Demand, deployment and market concentration: The source of demand for technology, the type of development and differences in deployment affect aggregate productivity:

• Creative ideas (particularly new technologies) arise from inspiration and demand (often public sector demand and R&D, such as for military or health purposes). Creative effort and/or investment is rewarded by extra profits gained from being the only supplier of the new offering or of cost-saving production. Intellectual property laws ensure the early stage monopoly. To the extent intellectual property law is the source of the market power, excessive profits could be addressed by compulsory licensing or other moderation of the legal ‘rights’
• Over a reasonable time, this monopoly-like extra profit declines; competitors survive by investing in innovation, catching-up or leap-frogging to a lead, refining the offering and/or finding lower cost sources, collectively involving diffusion of innovation and its gains. Early stage extra profits are eliminated by the competitive dissemination and the next cycle begins with more or less immediacy after the prior one.

Instead, the performance that poses the policy challenge today rests on policies and conditions that create:

• market power, at least partly through control of technology by leading firms, that inhibits investment by other firms in the sector. Elimination of early stage profits and improved aggregate productivity from dissemination of innovation and growth are delayed. The magnitude of deviations from the competitive model, as the actual performance, vary with the nature and applications and technology uniqueness, life cycles, methods of deployment, aggressiveness in intellectual property protection, global intra-company technology transfers and control, scale economies or other advantages of a dominant supplier using an innovation, enforcement of competition and aggressiveness of the leaders vis a vis the followers in an industry
• income distribution differentials that are affected by education and skills training opportunities; their supply/demand balance; and compensation in leading versus lagging firms even among the skilled; importance of workers in the use of contemporary technologies; and automation of mid-level jobs accentuating income disparities.

These determinants are integrated in the fabric of the economies and societies – in technology and intellectual property, industrial strategies, market structure, trade and education policies and conditions; and fiscal policies. Modification of myriad policies is necessary if the market outcomes are to change. Alternatively, or as a contributing initiative, a more overall redistribution method of correction can be conceived. But currently, tax and re-distribution no longer correct for disparities as a result of reduced tax progressivity and lower tax rates/revenues available to governments. Political views are also less attentive to the disparate results among different categories/members of the society. Both the modification of the myriad policies involved and the redistribution sharing of technology gains, or social policy to address job displacement by retraining, require political priority to the goals of technology advance, and efficiencies of trade, while equally seeking more even or equitable income distribution. The costs of political resistance to the value/efficiency of globalization and/or innovation can be higher than the costs of adjustment and assistance, even if it takes more time in a digital technology world to retrain the displaced for new jobs, requiring more adjustment assistance.

TThree important points emerge:

• With both output and distribution being adversely affected, investors and workers have an interest and potential for gain from a policy response. This should make dialogue more promising, but that does not seem to be occurring.
• Since prominent causes of each adverse variable are much the same (e.g. market power reduces technology dissemination and focuses the gains on the fewer fortunate skilled employees of the leading and innovative firms), the same policies can go a long way toward correcting the concerns.
• The costs to the community of political opposition to technological innovation and trade is likely, in many cases and over time, to exceed that of corrective action. It does not take much loss of productivity and/or output to make a policy change quite compelling and less costly than the growth and efficiency foregone.

There are numerous other factors that might influence performance on the variables of concern. However, given the data on industrial concentration and returns, and on strengthening of technology rights and practices, as well as their correlations with the deteriorations in productivity, investment, output and with income disparities, these are the principal causes that need to be addressed. The fundamental policy challenges and choices would not seem at all likely to change as the institutional/political context is not showing signs of change. There are such issues as:

• the deficiencies in the measurement of output and productivity, but the output and disparity parameters are real and comparisons over time use the same measures correcting for this matter to some extent;
• the potential for a macroeconomic strategy to stimulate greater investment, perhaps generated by new technology, under current conditions of low yields is not expected to change the fact of less investment than should or could occur. Restrained dissemination of technology, resulting from limited competition and increased technology protection are among the conditions and policies impeding investment and performance;
• the changed characteristics and significance of intangibles/intellectual property, particularly in their share of market value, only intensifies the challenges at issue here;
• the shifting drivers of R&D selection and expenditures (between social, commercial or military demand); the variations of results that might arise from different deployments; or the imposition of public interest review on deployment might influence policy details, but would not be expected to change the basic discussion needed in the community on the issues of technology, productivity, investment, growth and income disparities

It is worth observing, even emphasizing, that the contemporary geopolitical ‘World Dynamics’ revolve heavily around rivalries in technology, industrial performance and attitudes toward governments. The issues of this project are of importance not only for social stability, fairness and living standards, but also for the geopolitical competition or rivalry among leading states.

Investors and workers are both losing out (see the Fact Sheet for the evidence reported). The report, Productive Equity: Technology and the Twin Challenges of Reviving Productivity and Reducing Inequality. is intended to stimulate and contribute to an informed public dialogue and consideration of policy options to correct or offset these conditions in what are public interest issues affecting social stability, cohesiveness and economic contribution to satisfaction. Reviving productivity growth and reducing need not be competing objectives for policy. The Report is available at www.ChumirEthicsFoundation/Technology&Disparity .