UK Edition
A speech to an audience of business leaders should be a relatively easy task for a Conservative Prime Minister. Yet Theresa May’s address to the Confederation of British Industry in November was not without its tensions, not least because, May has been critical of certain excesses of business since coming to office.
This, then, was a balancing act: a speech designed to reassure business that the Prime Minister is on its side, while simultaneously reinforcing her promise to deliver an economy that “works for everyone”.
Uncomfortable though this balancing act may be, May must continue to perform it.
The challenge for policymakers today is to recognise that while innovation and creativity must be nurtured and incentivised, evidence suggests that a neo-liberal, small-government approach does not deliver for everyone.
The muscular industrial policy that the Prime Minister advocates can become a cornerstone to her inclusive growth policy, but she will need to provide safeguards.
Getting this right will not be straightforward. It is clear now that technology must move to the centre of industrial policy in order to ensure that it is forward leaning and future proof, particularly as we are at the start of a super-cycle of innovation driven by the merger of the physical, biological and digital realms that will transform all industries. But many people will need protection during this shift.
The good news is that our universities and labs are already at the forefront of developing new technologies, ranging from biotechnology to artificial intelligence, which will collectively represent a fourth industrial revolution. McKinsey estimates that the internet of things alone will deliver up to $10 trillion in value by 2025.
The authors of an influential new book, The Innovation Illusion, make a compelling case that despite these technological advances, structural factors (from corporatisation through to specialisation and globalisation) are stifling the impact of disruptive technologies.
Rather than a feast, we are entering a period of innovation famine, argue its authors, the economist Fredrik Erixon and the entrepreneur Björn Weigel.
In its purest form, this argument warns that capitalism has lost its animal instinct and is instead managed by grey technocrats more interested in managed and regulated outcomes than long-term value creation through disruptive change.
If innovation and entrepreneurship are not allowed to return to their unbridled forms, the authors argue, the future of capitalism itself is in peril.
The Innovation Illusion reminds us of the Schumpeterian concept of “creative destruction”, and as with most of our debates on the topic, the focus remains on optimising the first half of the phrase rather than managing the second.
Erixon and Weigel dwell on the creativity and innovation, but focus less on the darker aspects of automation and cheaper production.
This is a mistake the Prime Minister should not make. Recent research by the Center for Business and Economic Research at Ball State University in Muncie, Indiana, has shown that between 1980 and 2015, a 2.5-fold increase in real US manufacturing output was achieved with a greater than 50pc decline in jobs in the sector. The study estimates that 85pc of those manufacturing job losses were caused by automation.
May’s CBI speech referred to the UK’s stagnant productivity as a cause for concern. Yet innovation, with its goal of greater and greater output per unit of input, may result in wage growth but may, on its own, not deliver her goal of jobs growth.
Today’s equivalent of robotisation and automation in manufacturing is artificial intelligence replacing white collar jobs. A study by two Oxford professors, Carl Benedikt Frey and Michael Osborne, published in 2013 concludes that almost half (47pc) of jobs held by US workers are at high risk of automation.
At the same time, even the greatest technophobes must acknowledge that disruptive technologies such as the internet and mobile computing have created millions of jobs, and that the net effect of creative destruction may in fact be positive. Even those who disagree will recognise that in a global economy, we cannot put technology back in the box.
In this context, the challenge for the Prime Minister is to manage and mitigate the disruption for those directly affected by its force.
The balancing act relies on having an industrial policy that works hand-in-hand with social and fiscal policy to ensure societal stability.
If she is tempted to turn from that daunting task, she might reflect on the fact that it was the US rust belt, the victims of one wave of creative destruction that in droves swept Donald Trump to power.
This is the complex world that we are facing. We cannot turn away from technology and innovation, but the source of our future prosperity could also hold the potential for further economic inequality, societal fragmentation and insecurity.
Getting the balance right will be a tightrope act indeed.
Nazo Moosa is an experienced technology investor and previously managing partner of Europe’s first cybersecurity fund, C5 Capital
May’s challenge: balancing benefits of technology with the risk to jobs