Technology and economic

The question among many governments today is: “How to create jobs?” For the past few years, economists have been discussing this issue but could not find answer. The reason is most of them only think about the type of job that they can measure such as the number of manufacturing jobs or agriculture jobs or economic data such as number of products created for export, number of crops produced in weight, as described in economic theories. What happen today is the main driver of the economic is something not measurable and does not fit the old economic patterns.

If we look at the past thirty years, we will find that almost everything is driven by technologies: Software, Internets, Mobile apps, automation machines and robots. This economic data is difficult to measure because some are traded and exchanged in the “virtual world”. For example, how do you measure the economic value of mobile apps downloaded via the Internet? How do you measure software value via open source? How do you measure online transactions? Without tangible data, economists cannot predict.

Probably for that reason the World Economic Outlook reported a bleak picture: “Looking ahead, there is no significant improvement in job creation. Many factories are closing with hundred thousand people out of work every month, and the number is still increasing everywhere.” Economists who contributed to the report measured assets such as manufactory outputs, energy supply amount; number export products etc. as these “tangible assets” are clearly stated in economic formula. They overlooked the fact that most job growth are being driven by “intangible assets” such as human capital, intellectual capital, and services which are key factors of the modern economy, where service-oriented businesses and high-tech manufacturing are the main job creation.

An economics professor told me: “The problem with high tech is robots and machines can replace people so there are no more jobs for people. Basically high tech destroys the economy. When unemployment is rising to certain level, there will be chaotic and unstable government everywhere; in that case war is difficult to avoid.”

I disagreed: “You forget the fact that it is people who create robots and machines. There are many jobs in software, hardware, and engineer etc., there is a shortage of skilled people to create robots and machines that can replace labor workers. The issue is education must change; economic measurements must change to focus on this “job creation engine”. In this information age, we must change our view and cannot rely on the old formula.”

He stated his view: “The high tech industry does not hire many workers as the factories. What are you going to do with hundred thousand of unemployed labor workers? High tech creates few jobs but destroy a lot more. Our concern today is how do we create more jobs for these people? As an economist, I do not see a bright picture here.”

It is difficult to argue with such “logic” of quantitive instead of quality; labor jobs instead of intellectual jobs. Of course, as factory automation is happening in many countries, I can see that many labor workers will be replaced by machines and robots soon and without appropriated action, the economy look bleak.

Sometime I wonder how many economists read history books. If we recall the history of the industrial revolution, we can also see a very similar pattern. During the late 18th and 19th century, inventors and scientists developed new machines, new techniques, and new devices that contributed to the progress of industrialization in the 20th century, but they also faced many criticisms and resistances. For example, when steam engine was used to power a boat in England, workers were told that it could destroy their jobs so they set fire to the engine and threaten to kill those steam engine scientists. When Barthelemy Thimonier invented the first sewing machine, angry tailors burned his house and almost killed him out of fear of unemployment. When locomotive train was invented, European governments wanted it outlawed since they worried that the development of railroad could hurt jobs in transportation by horse carriages. At that time, Europe had many top universities and many brilliant scientists but things that they invented were suppressed because many economists told governments that these things could destroy jobs in the crafting industry. That was why many scientists and inventors left Europe to America and began the industrial revolution there. If European governments had vision and allowed theses scientists and inventors to continue their works, we may still see the glory of Europe today and America may still be a place full of cowboys and Indians.

Today we are experiencing the first wave of the information age with personal computer, Internet, mobile phone, robotics but I am sure there will be more to come. For this new age to flourish, a new education system based on science, technology, engineering and math (STEM) must be developed to produce workers who have specific skills and knowledge to think critically, to innovate, and to create a new economy. That kind of high-level work relies on qualities of character of every individual as much as their knowledge and skill.

I believe that leaders need to understand about the “intangible knowledge” that drives the economy rather than continue with the concept of building physical assets or measurable exports product in factory as taught in many business and economic courses. Today countries cannot rely on factories as “job creation engine” as in the past. They must avoid the economic model of “Export-led economy” that has relied on consumers in the U.S and Europe to buy cheap export products from them. With the current crisis that is spreading all over Europe, people there will NOT buy much. A slowdown in global economy means developing nations must find other solutions. China has seen its “economic miracle” slowed down where exports came to a halt. Even India's economy was also slowdown but at a much less pace.

The trend is clear that the “old economic” theory of prosperity by low cost labor and cheap factories is about coming to the end. Developed countries are rather “insource” rather than “outsource”. In this fast changing time, every country must find its own “job creation engine” instead of depending on someone to export jobs to them. Universities must focus more on STEM education to meet business needs. Reviving the economy require more people studying innovative technologies because modern factories require skilled workers. This requires vision, determination, and courage to set a new direction to seize the opportunity as competition will be fierce.


  • Blogs of Prof. John Vu, Carnegie Mellon University