Productivity Shifts and Technological Revolutions

OK, if you are watching this course, chances are that you are or will be working in some type of service industry like finance, law or accounting. If so, what is the difference between your chosen career versus, let’s say, a farmer or some other type of blue-collar worker? For a lot of us, we choose our careers based on security – industries that we think of as safe – but here’s the reality: you are a lot more like a farmer than you may realize.   

So now you understand cultural lag and both the challenges and moral implications that come from introducing disruptive technologies. From a FinTech perspective, some exciting disruptions are right around the corner. And while these innovations will make many aspects of life much easier, there is one major challenge that we feel we need to address: the social ramifications of unemployment and job loss.  

To get this point across we need to go back in time again. Early communities of humans congregated around each other in villages for specific reasons. Obviously, protection and socialization were among those reasons, but there was one overarching activity that held early societies together: food.  

Early human communities revolved around agriculture, and many of the most important early innovations revolved around the growing, harvesting, and storage of food. During the Bronze and Iron Ages, stone and wooden tools were replaced by more efficient metal tools, but the main processes in agriculture remained largely unchanged for thousands of years. That changed quickly during the Industrial Revolution. 

In many parts of the world, during the Industrial Revolution, horse-drawn and even mechanized harvesting equipment were introduced leading to a vast increase in productivity. This not only sped up the time in which crops could be planted and harvested, but it also significantly increased crop yields. 

During that time, the number of people working in agriculture dropped, but the amount of land that could productively be used to grow crops grew substantially. This led to fewer but larger farms. To put it simply, fewer people were needed to farm, but simultaneously more food was grown. 

In fact, some historians contend that these improvements in agriculture “permitted” the Industrial Revolution because the increase in food production and decreased need for farm labour meant that more people could work in urban industries, providing labour for factories, large urban utility projects, and all the innovation that led to the rise of the 20th century. But there were a few obvious problems that stemmed from this. 

First, these advances didn’t occur everywhere. For example, many of the countries that are still developing today did not participate equally in these advancements for a variety of reasons, and as a result, their economic progress was delayed. And even in developed countries where these advancements were adopted broadly, the benefits were not distributed equally.  

But there was another more serious issue. While the machines and tools that were introduced improved productivity, they also made many jobs redundant, leaving millions out of a job, and needing to transition to an entirely new industry. In the United States alone, agricultural jobs transitioned from 40% of the workforce in 1900 to only 2% in 2000. That’s only 100 years! And while that may seem like a really long time, in terms of human history that is incredibly short. 

So where did all the old farmers go? Well, the lucky ones were able to find even better jobs in manufacturing, or even in services related to the agriculture industry, like logistics, storage, or marketing. The point is that they had to reinvent themselves, and rethink the way they defined work. For many people, this was a great opportunity, but others got left behind in the process. 

Now consider today. We now have unmanned drones that can plant seeds, spray and monitor the health of crops, and even harvest them. And artificial intelligence and machine learning are being integrated to help farmers make better decisions and monitor growth in real time. As a result of all this, less and less human labor is needed to run mega farms. 

But for most developed economies, these changes started more than a century ago. What happens when these modern technologies are integrated into developing countries today?  

From 1990 to 2017 – just 27 years – It is estimated that in China agriculture employment went from about 55% of China’s population to about 17%. That’s a difference of several hundred million jobs. And while China has done a good job of expanding its economy and transitioning those workers to the manufacturing sector, you can see how difficult it can be when productivity shifts make workers obsolete.   

In fact, speaking of manufacturing, this is also happening in that sector. Throughout the US and EU, manufacturing jobs have been slashed through a combination of innovation and automation. Many of the workers who lost their employment have yet to be fully reintegrated back into the workforce, leading to significant political pressure and social anxiety. 

One question that bears asking is who is responsible for ensuring these new innovative technologies are integrated in such a way that social harm is minimized? Is that the role of the innovator? The government? 

Why does any of this matter?  

And what does it have to do with FinTech? Well, if predictions can be made, we are about to enter the Fourth Industrial Revolution, which could bring the most significant disruption and productivity shifts humankind has ever seen. Artificial intelligence, blockchain, and other new technologies will completely alter not only how we work, but our entire perception of what work is. 

Let’s use 2 concrete examples: cashiers and drivers. Cashiers – the people who you pay when you leave a store – and drivers make up the #1 and #2 most common jobs in the United States and many other developed countries. Millions of those jobs will be eliminated within the next 10 years as automation, driverless vehicles, and other FinTech innovations make them obsolete.  

It has been estimated that 38% of current US jobs are at high risk of being made redundant by robots and automation in the next 15 years – that represents about 60 million jobs, or 1/5 of the entire US population! 

And although some new jobs will be invented that many of these workers will be able to take up, unlike previous productivity shifts, these newer innovations are largely replacing human workers completely making it very difficult for the unemployed to simply shift into new work.  

For example, for a farmer to go work in a factory, new skills are usually not required. But for a cashier or truck driver to become a computer programmer or robotics engineer, an entirely new skill set requiring years of schooling and training would be required. 

So now let me turn the question back onto you: what are you doing to ensure that in your profession or in your career; you’re ensuring that you don’t become redundant or that you can stay ahead of these new emerging technologies?