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The Technology Trap: Capital, Labor, and Power in the Age of Automation

Author(s):Frey, Carl Benedikt
Reviewer(s):Field, Alexander J.

Published by EH.Net (August 2019)

Carl Benedikt Frey, The Technology Trap: Capital, Labor, and Power in the Age of Automation. Princeton, NJ: Princeton University Press, 2019. xiv + 465 pp. $30 (hardcover), ISBN: 978-0-691-17279-8.

Reviewed for EH.Net by Alexander J. Field, Department of Economics, Santa Clara University.

 
Carl Benedikt Frey has written an important and timely book. Its concern is the impact of new technologies on labor earnings and employment prospects in different time periods, principally in Britain and the United States. Frey, who codirects the Program on Technology and Employment at Oxford University, agrees that over the long run technological change is the fundamental driver of improvements in (average) material living standards. But averages conceal a great deal of variation. The author emphasizes that when technologies change, some people lose. These individuals are not necessarily compensated by the winners, their losses may persist throughout the remainder of their lifetimes, and it is small consolation to tell them that their “sacrifices” are laying the foundation for a better tomorrow. It follows that it can be individually rational for those who see their livelihoods threatened by technical change – handloom weavers in eighteenth century Britain, or perhaps truck drivers in the twenty-first century — to do whatever they can to try to stop or otherwise obstruct the changes, even if this has the effect of reducing average incomes. This observation is critical to Frey’s understanding of the past and his concerns about the future.

In particular, Frey endorses an explanation of the timing and location of the world’s first industrial revolution that is ultimately political. The availability of a new technology, particularly if it is labor saving, is not necessarily the proximate cause of its adoption. Politics matters. The landed classes feared the potential disruption and threat to their rule that might result from new processes that put people out of work. So long as they held uncontested power, they were prepared to stand in the way of such changes. The eighteenth century industrial revolution went forward in Britain when and because the government switched from siding with guilds and other artisans who opposed labor replacing technologies to a policy of cracking down, with thousands of troops if necessary, on those who would smash machinery or otherwise block the productivity and profit enhancing impact of the new equipment. These innovations were critical for maintaining and increasing Britain’s growing commercial supremacy.

Frey’s main conceptual apparatus is a distinction between labor replacing and labor enabling technologies. Labor replacing technologies, he says, use physical capital to reduce unit labor requirements and can pose a real threat to livelihoods. Labor augmenting or enabling changes, he suggests, increase workers’ productivity in their existing jobs or open up new opportunities for employment. But the distinction is not quite so straightforward. One would like these terms to be dependent on the nature of the technologies themselves. Even when the introduction of machinery throws many out of work, those remaining will likely find productivity in their existing jobs increased. This disrupts the bright line Frey is trying to draw between these two categories of technical change. Whether livelihoods are threatened in an industry directly impacted depends greatly on the price elasticity of the demand for the good or service whose production is affected. Frey’s treatment of these interconnections is somewhat opaque and incomplete.

Theorists and economic historians have long acknowledged that labor saving technical change may reduce wages and/or labor’s share of national income. That is a different question from whether it results in widespread and persisting unemployment. Ultimately the cost reductions in the industries affected increase people’s real incomes, and lead to expanded demand for other goods and services, and for the labor necessary to produce them. In some cases, however, this transition may take the better part of a generation or more. And, as noted, labor’s share may fall, even after reattainment of more or less full employment. That is apparently what happened in the first part of the nineteenth century, and the trend has reappeared in the years since Margaret Thatcher and Ronald Reagan came to power.

Frey’s book has five parts. The first, The Great Stagnation, covers economic history up to the industrial revolution, and emphasizes repeatedly that availability of new technologies did not necessarily lead to their adoption. The political (and arguably cultural) context had to be right. In the eighteenth century it was in Britain but not in France. Thus the development of industry was very different in France as compared with Britain. These contrasts are discussed in Part II, The Great Divergence. Part III, The Great Leveling, describes how a period of growing inequality and immiseration of the working class (Engels’ Pause) led eventually to more than a century of more broadly shared income growth in Britain and the U.S. Part IV, the Great Reversal, details how this dynamic came to an end in the 1980s.

Frey blames growing wealth and income inequality on a change in the bias of technical change once again towards the labor replacing variety. But this seems to me overly simplistic, particularly in a book emphasizing political factors in explaining the timing and location of the first industrial revolution. It would have helped to have a more explicit treatment of the effects in both Britain and the United States of the resurgence of conservative and generally anti-labor and anti-union ideology and power. Surely Reagan and Thatcher mattered, along with the ensuing dramatic reductions in income and inheritance taxes, the remaking of the judiciary in the United States, and what this has meant for the operation of democracy (Frey does mention some of these developments).

The last part of the book, Part V, focuses on the future. Frey is optimistic about the potential of new technologies, particularly artificial intelligence (AI) coupled with big data, but is concerned implementation may be blocked by those who stand to lose, in the same way that the industrial revolution may have been delayed for decades, perhaps even centuries, by similar obstructionism. His last chapter considers policy initiatives that might prevent or partially mitigate some of this dynamic in the future.

The Technology Trap is carefully and extensively documented, and includes references to the very latest research, including NBER working papers published as recently as 2018. That said, the history is based almost entirely on secondary sources. But Frey has read widely, and his interpretations are considered and almost always consistent with the latest research. Many works of this nature, which attempt to cover centuries, indeed millennia of economic history, as well as look into the future, end up being superficial and often error-ridden. On these dimensions the book is largely if not entirely an exception. A great deal of effort, thought, and scholarship went into its writing, and it shows. There is much food for thought here and I can envision this assigned in upper division economics classes as well as some graduate courses.

 
Alexander J. Field is the Michel and Mary Orradre Professor of Economics at Santa Clara University. He is the author of A Great Leap Forward: 1930s Depression and U.S. Economic Growth (New Haven: Yale University Press, 2011), and is currently working on a book about the supply side consequences of U.S. economic mobilization for the Second World War.

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Subject(s):Economywide Country Studies and Comparative History
History of Technology, including Technological Change
Labor and Employment History
Geographic Area(s):General, International, or Comparative
Europe
North America
Time Period(s):General or Comparative