Productivity is stagnant. Wages are going nowhere. The welfare state is increasingly unaffordable as more and more commitments pile up on economies that no longer grow as quickly as they once did. There is no shortage of reasons to feel gloomy about the outlook for most developed economies.
Yet other trends suggest prospects may be a lot brighter than most of us imagine and of these, the most significant is robotics. A new paper from the London School of Economics (LSE) suggests that robotics has already had as big an impact on growth as the steam engine, and is catching up with information technology (IT). And it's only just getting started growth may yet surprise us all on the upside. This may seem hard to believe.
Robots are only just edging their way into most people's consciousness largely through gimmicky products, such as robot vacuum cleaners (although mine does a surprisingly good job of sweeping the floor). But robots have been around in factories long enough for us to start coming up with reasonable estimates of their impact on the economy. And it turns out that this is bigger than we realise.
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Will robots displace workers?
From 1850 to 1910, they found that steam added 0.34% to annual labour productivity growth. From 1993 to 2007, robotics added 0.36%. It may not sound much, but that is 10% of total GDP growth over that period. Robotics is rapidly closing on IT, which they reckon added 0.6% to productivity between 1995 and 2005.
Many people worry that robots will simply replace workers, leading to an overall loss of jobs, rather than creating fresh growth. But there is not much hard evidence of that. If it were true, you would expect the countries that were most advanced in using robotics to have lost the mostjobs, especially in manufacturing. But that's not been the case. Germany, for example, saw some of the highest levels of investment in robotics over those years, mainly because of its huge car industry. Yet it lost relatively few manufacturing jobs compared with the UK, which invested very little.
The revolution is just beginning
Much the same was true of IT investment was ramped up hugely three decades ago, but arguably it is only now that we are seeing the real impact of that in the way we consume and make things. Robotics may well follow the same path. If it does, then you would expect the impact of that to come through in the 2020s and 2030s. So what will it mean for our economies?
What will robotics do for us?
Second, it will create new products.The steam engine created mass-produced goods for the first time.What were once luxuries became affordable. Robotics may do that too. Not many people can afford a gardener, chauffeur or cleaner. But a robot lawn mower, or a driverless car, will be pretty much the same thing. So will a range of robotic home helps which will quickly become a lot more sophisticated. And they will be cheap enough for most people to afford them.
Finally, a lot of time will be freed up. Steam trains got you from place to place a lot quicker than horses. Robots won't do that, but if you don't need to drive, then you can work on the commute to the office effectively the same thing. By taking over many mundane everyday tasks, robotics will leave us all with a lot more time to work ourselves, and to consume other's people's work. That will be great for economic growth.
We obsess over tax rates, fiscal policy, labour market reforms, training, and so on, as if they are what will determine our economic development. But mostly they are minor factors. The real driver of growth is technologies that make us more productive. And on that front, robotics means the outlook is a lot brighter than most people believe.
Matthew Lynn is a columnist for Bloomberg, and writes weekly commentary syndicated in papers such as the Daily Telegraph, Die Welt, the Sydney Morning Herald, the South China Morning Post and the Miami Herald. He is also an associate editor of Spectator Business, and a regular contributor to The Spectator. Before that, he worked for the business section of the Sunday Times for ten years.
He has written books on finance and financial topics, including Bust: Greece, The Euro and The Sovereign Debt Crisis and The Long Depression: The Slump of 2008 to 2031. Matthew is also the author of the Death Force series of military thrillers and the founder of Lume Books, an independent publisher.
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