The global pandemic is still making its ugly presence felt. But increasingly, there’s talk of recovery. Even the forecasts have suddenly become a lot more upbeat. For younger members of the workforce, this must all seem surreal; they could be forgiven for tossing off an “OK, boomer!” to the older set that see brighter conditions, and soon. After all, the young had to bear the brunt of the post-global financial crisis doldrums. And it’s sinking in that they’ll have to bear the weight of the nascent ballooning of public debt everywhere. So, is all this new talk of growth just wishful thinking, a flash in the pan, or is there hope for something that’s stronger for longer?
To answer this, we return to a pre-COVID-19 commentary on Jan. 23, 2020. In that column, I delved into the weakness of labour force growth and pondered whether that would crimp long-term growth.
To many, that’s a foregone conclusion. Fewer people, fewer workers, fewer needs. Lower aggregate income and spending. And if the population is aging, well, a host of them are well-past their peak consumption years, and, of course, consumption is the dominant driver of the economy, and so on. Yes, typically, demographics have held enormous sway over the progress of an economy. A key example of this is the post-war baby boom, which ushered in a huge wave of sustained growth and overall prosperity. It’s hard to argue that demographics aren’t critical.
Couple this with the world’s current demographic picture, and it’s hard not to join the growth pessimists. Western Europe is hitting peak population, as organic population growth has long been below the replacement rate. Italy has particularly poor demographics, prompting the word “crisis” from certain analysts. Other Organisation for Economic Co-operation and Development (OECD) nations are little better. China is reaping the consequences of a decades-long, one-child policy. Sustained, spectacular growth has sopped up hundreds of millions of “spare” workers, and the economy is now being impacted by increasingly scarce domestic labour. The growth bears are all over this. Russia and others face the same dilemma. So, is that where the story ends? Is slowing growth all we have to look forward to?
Normally, yes. But these are hardly normal times. Thankfully, the long-term economy isn’t just driven by population. Two other pillars of growth are critical determinants of the future: the amount of capital in the economy; and the productivity growth that we generate from the way we combine labour and capital. How are these other factors doing?
Here’s where the standard story changes. Exponential growth in technology is bringing capital to a point where it could revolutionize growth. Labour constraints are putting the bite on growth, but technology is now displacing a lot of tasks that previously labour alone could do. Robotics, machine learning, artificial intelligence and other digital applications are being enabled through ever-more-powerful communications systems, promising to enhance the contribution of capital and productivity to the equation. COVID-19’s existential threat to commercial activity has jolted business into a new techno-awareness.
If all of this sounds a lot like the industrial revolution, bingo! That’s exactly what it is. And by their very nature, revolutions are seldom smooth, so there’ll be fallout. But this one’s not blessed with an ocean of surplus labour; it seems it’s just in time to fill an increasingly acute labour gap.
Even so, there are justified worries about skill mismatch—that is, the jobs that are displaced are simpler, manual tasks. In fact, there’s a broader concern about a concurrent white-collar displacement. There’s also concern about winner-take-all technologies, and increased corporate concentration, which suggests a widening of income disparity. These concerns are all legitimate. But if we foresee that democracy continues as the predominant political system, then these issues will no doubt see their ultimate resolution at the ballot box. Output will no doubt be higher, and the broader political question will be how to ensure an appropriate distribution of output’s proceeds.
