The Paradox of Technological Progress

Something strange is going on in our businesses and in the economy as a whole, all over the
advanced, industrialised world, and Japan is at the forefront of this strange trend.

We are all talking about technology, all of the time. Bookstores are full of books about
artificial intelligence, robotics, biotechnology, digital transformation, societal disruption and
all sorts of similar themes. AI has even entered the world of novels, the theatre and art.

Alongside this excitement about an era of rapid technological progress, which may even,
people often claim, be the fastest period of technological change the world has ever seen,
our fellow citizens are benefiting from more and, arguably, better education than ever
before. In most advanced countries, close to or more than 50% of boys and girls who
graduate from high school go on to full university degrees.

As I pointed out in my last column in these pages, the huge gender gap in tertiary education
that characterised Japan in the 1980s, with only 10-15% of girls attending four year courses
but 30-35% of boys, has now been almost closed, with 50% of girls and approximately 55%
of boys enjoying such tertiary education.

So now, and for at least a generation, our fellow citizens have been equipped with the sort
of cognitive skills that are necessary to cope with this era of technological development.
Moreover, given that everyone we encounter, in every city of the developed world, is
carrying in their hands a smartphone that gives them more computing power and access to
information than has ever been seen before, there is no reason to doubt that we should be
able to exploit this digital, transformational age.

But here’s the strange thing. We aren’t. At least, it is clear that if there is a technology
revolution going on it is not bringing a productivity revolution. And in all advanced
countries, including Japan, a very large proportion of the workforce is being employed to do
jobs that are below their apparent skill levels.

Unemployment is low, almost everywhere, but underemployment is rife. In other words,
people in every advanced country are being employed in jobs well below their skill levels
and often for fewer hours in the week than they would like to work. In Japan this is
especially true of women, but it is also true of male workers employed on non-regular,
short-term contracts.

Some theories explain this by arguing that technology is replacing humans, forcing more
people to work in low-skilled, low-paying jobs. Yet if this was true on a widespread societal
scale we would be seeing evidence of it in the productivity data. Economies, especially
Japan’s which looks on the surface to be running at full employment and with a labour
scarcity, would be seeing measured output of both goods and services per person employed
rising strongly, even if workers’ wages were not seeing the benefit.

This is not happening. Growth in productivity, however it is measured, is considerably
slower than in the past and shows no sign of accelerating. Productivity growth in Japan is
not the worst among the advanced countries – Britain’s is slower despite also enjoying                              very low levels of unemployment – but in Japan it is nevertheless a lot slower than in the recent
past.

This paradox of rapid technological progress and slow productivity growth is very strange
but it is not unprecedented. One example of an earlier era when this happened was the
1930s. Admittedly, many other aspects of the 1930s were rather different from today, in
particular in international politics. Nevertheless, the comparison is instructive: the 1930s
saw rapid technological innovation, especially in aviation and other transport but also in
factory automation, and progress in communications from earlier eras achieved much fuller
implementation. But it was also an era of unemployment, of great depressions and
ultimately of war.

The lesson is that technological progress is not as exciting as we like to think. It may be
rapid, but what really changes our lives is the implementation of such technology by
companies, governments and other institutions. This requires investment and it requires the
skilful use of human capital, training employees and deploying them in jobs that make the
best use of their talents and skills.

In Japan today, as in Europe and the United States, it is this combination of investment –
both corporate and public – and of skilled use of human capital that is absent. This is the
reason for our strange paradox of progress without productivity. Only when investment
increases and human capital is properly deployed will be see the real age of technological
progress.

Image by Benjamin Nelan from Pixabay