Technological Improvement: Good, Bad or Terrifying?

Have you ever been to McDonalds and noticed that the staff at the counter don’t take your order, but rather, you are served by the automated machines in the front of the shop? This is a form of technological unemployment in the economy.

Technology replacing workers is a phenomenon that has been growing exponentially since the 2000s. The benefits of technological unemployment have been significant price cuts for consumers, higher standards of living and the development of comparative advantage in trade. Technological unemployment, however, is a double-edged sword, and some negative sides to technology replacing human jobs are increased unemployment, greater income disparity and, as a result, weaker spending on goods.

Most would agree that technological improvement is good for the economy because of the benefits it tailors, however, we must also be wary of the disadvantages that may jeopardise possible future benefits. Technology must replace traditionally-human jobs at a rate that doesn’t risk causing mass unemployment.

The financial crises of 2008, when analysed, reveals why too little and too much technological improvement is undesirable. Developed economies such as the US, Japan and Australia have high levels of technological growth accumulated through capital: machinery and high tech gear are two examples. In contrast, developing countries such as China, Indonesia and Kenya have low levels of technological growth.

In 2008 the different standards of technological improvement in each economy triggered entirely different responses. The role of the government in a recession is to increase expenditure to make up for weak corporate growth and consumer expenditure (as both parts of the economy will halt on any spending until the situation stabilises a bit more). In developed and developing economies the direction of their respective responses were the same, but were executed in vastly different ways. In the US, the level of government infrastructure projects has been decreasing since 2005 when compared to China, which has been increasing since 1990. This is indicative of a difference in policy execution due to the distinctly different types of economies in question – both these countries handled the crisis very differently.

The US economy has enjoyed a high level of technological improvement because of a continual emphasis on the automation of industrial and even corporate tasks – this is somewhat important when dissecting the pros and cons of both rescue measures. Governments, however, cannot just increase the level of infrastructure projects during a financial crises to shield the economy from the shocks to private investment by firms and expenditure by households. To bolster the economy, the US took part in quantitative easing which, in the simplest of terms, is the practice of injecting cash into the financial sector. Although the policy was controversial, most mainstream economists agree that the plan worked. The downsides of the policy, however, did lead to increased income disparity. Since the cash was injected into the financial sector, the majority of the public did not enjoy a direct benefit and unemployment rose to eight percent. The inconvenient truth, however, was that it was a necessary evil.

If the US were not as developed, it could have engaged in infrastructure projects to keep employment and investment levels stable. This approach worked in China because China’s economy is labour intensive and more dependent on people when compared to the US, which is capital intensive. Since this time, however, Chinese debt has been increasing exponentially, and the rising trend is problematic. I argue that if the Chinese economy was more capital intensive – more dependent on machines – there perhaps would be not as much debt.

In my view, it is the level of technology a country has that defines its macroeconomics. A country with too much invested in technology risks massive unemployment, but too little technological replacement of typically-human jobs might also be costly and result in national debt. The exact ‘sensible amount’ of technological improvement would be near impossible to define – finding this point, however, is more crucial than ever before. Why? A continued focus on automation might cause increased unemployment and general unhappiness, often leading to growth in more authoritarian/totalitarian ideologies. This might even result in the collapse of entire democracies. I exaggerated to make my point, but the future of automation is indeed not without terrifying risks.