Horizons Talks: The future of GDP and the future of work

The Horizons Talks speaker series brings experts from Canada and around the world to share their forward-looking research and ideas with public servants.

Could digital technologies cause a permanent decline in demand (as measured by GDP)? What might be the economic and fiscal impact?

Join us as we explore the impact of digital technologies on the economy with Armine Yalnizyan, Atkinson Foundation’s Fellow on the Future of Workers. Armine served as Senior Economic Policy Advisor for the Deputy Minister at Employment and Social Development Canada from 2018 to 2019.  

Digital labour platforms are growing rapidly, both in existing sectors and those with higher skills and wages. This could cause more of Canada’s high-paid, white-collar workers to compete with people from lower-wage economies, much as blue-collar workers struggled with globalization from the 1970s to the 1990s. As global wages converge, workers in richer countries could face falling wages, while those in poorer nations could see increased pay and purchasing power. This may not play out evenly, but—like everything we are learning throughout this pandemic—governments’ responses could maximize their potential.

Video

Speakers

Marcus Ballinger, Policy Horizons Canada, Moderator
Armine Yalnizyan, Atkinson Foundation’s Fellow on the Future of Workers

Transcript

MARCUS BALLINGER:  It’s a great pleasure for me to introduce Armine. I’ve had a number of conversations over my professional career with Armine and I’ve always found them to be enlightening and very interesting. It’s a great pleasure for me to introduce her.

Who is Armine Yalnizyan? She is the Atkinson Foundation’s Fellow on the Future of Workers. She also served as Senior Economic Policy Advisor to the Deputy Minister of Employment and Social Development Canada from 2018 to 2019. She helped to lead the Canadian Centre for Policy Alternatives Inequality project from 2008 to 2017 and many of you will recognize her from her weekly business commentaries on CBC Radio and television which she did from 2011 to 2019. As if that isn’t enough, she is also the past president of the Canadian Association for Business Economics.

Armine, it’s a great to pleasure to welcome you and I am very much looking forward to your talk today.

ARMINE YALNIZYAN:  Thank you very much for inviting me and thank you for introducing me to the world of futures thinking. This team with whom I worked is quite remarkable in terms of their patience with me but also their willingness to learn along with me on how you do futures work when it comes to economics.

The premise of why I was asked to join Policy Horizons and thinking about this, the process I’m going to go through real quick because you should all know about that part of it. I’m really only going to focus on the first four major findings because we will run out of time, but I’m happy to discuss the rest of them. I’ve created a Power Point where you can have cheat notes for the findings but also a link to the whole thing. The premise of this whole piece of work was, could digital technologies destroy demand as measured by GDP? The answer because we’re not doing a murder mystery here is, possibly.

I’ve got to tell you that any economist talking about what could destroy demand is not going to advance in their career, in this country or anywhere else. So I was a little bit loathe to do this but I was intrigued by what was presented to me by the people from Policy Horizons who were basically making the case that any of us looking at digital technologies will observe is that digital technologies create abundance and abundance can create price deflation. Is it possible that whereas technology historically has spurred economic growth as measured by GDP, could it be suddenly spurring deflation?

Obviously, the pace and the sectoral breadth of adoption of digital technologies matter and obviously we are doing this economics 101 case study which is ceteris paribus. If nothing else was changing and we were only adopting digital technologies, could digital technologies destroy demand? These are the things that you must keep in mind as I talk to you. I am not saying that digital technologies or our future of GDP or future of work will unfold like this because there’s always tons of other stuff that are happening. But just looking at the effect of digital technologies and tracking them through how they might flow through all the different corridors of economic transactions and realities and context, it seems possible that digital technologies could reduce demand as measured by GDP. It might not happen everywhere but it could happen some places and Canada is likely a place as any for it to happen and I’ll tell you why in a minute.

First of all, why is it that my screen is so slow to respond to me? Probably by the time it responds to me we’re three slides in but I have moved it forward. Let me tell you about what happens next. In this slide deck is my telling you about the process. I have been working with Policy Horizons on labour market issues for a number of years. I was one of the people that they had talked to with respect to what could be futures in labour markets. They came to me saying, “We have looked around the corner and here is a thing that we think we’re seeing. Can you help us see if that makes any sense from an economist’s point of view?”

This type of work is so important to governments. I’m part of a global network that not all countries in this global network have this capacity or do this kind of work and they are wildly envious that Canada’s government would have chosen to create this capacity, this policy capacity for governments.  Now, the pandemic has poured accelerant all of the questions that Peter Padbury, Marcus Ballinger, and Steff Christensen asked me in 2016 and 2017. We couldn’t see any of this coming but especially the future of work aspects are the aspects that are leading to what we need to talk about first which is slowth before growth, so I’m going to go through. First of all, every time I introduce a chapter, I’m going to show you what the high points are and then I’m going to dig into the high points a bit.

I had been talking about slowth for a while already. Slowth is not recession but it is a slow down in the rate of growth of GDP that has been on the horizon for decades. It has been playing out. That’s why people want to boost productivity and boost innovation, to hep up investment but no matter what we do, no matter what playbook we put into place, GDP growth has been slowing as a long-term secular trend since the early post-war period. Population aging, extreme climate events and now increasingly uncertain international political alliances and alignments guarantee slower growth.

When we talk about putting a policy priority on growth, what are we going to get? Are we going to get growth from technology? Are we going to have something that either offsets or speeds up slowth? And again, the first thing about digital technologies is their deflationary tendency. The second thing is that not all prices fall at the same time and so the prices that fall first will determine whether workers are better off or consumers are better off. In other words, if the prices of goods and services fall first then you’re better off. If the prices of wage rates and earnings fall first, you’re worse off. Of course none of these processes ever take place evenly throughout the world or even within a country or even with a region amongst everybody that lives in that region. There are some really important winners and losers dynamics.

That’s all I need to do here. I’ve just kind of spelled it out a little bit more dramatically for you in this slide. We can go back to it but certainly the question as it was originally posed to me, “Could digital technologies slow growth?” it was unclear to me that the question was global or for Canada. It turns out it was everything. Tell us everything. Could it be global? Could it be fore Canada? And so I want to say that it is highly unlikely that this would occur at a global level but it is not that unlikely, at least the impact of digital technologies holding everything else constant could have a deflationary effect.  The big story here will be paying attention to winners and losers the same as we didn’t do for trade relations.

About four years ago we put emphasis on export-led growth, negotiated a bunch of trade deals. It made us better off as consumers and it made some workers a lot worse off and the world was in lockstep in that process. You could say that the rise in inequality and the backlash to the rise in inequality is a direct result of not paying attention to winners and losers until the last few years. And so this is what we have to watch out for going forward.

The next part of this is, how does it do this? How does it introduce a deflationary tendency? We’ll start off with production and labour. First of all, digital technologies mean, you don’t need mass production to have mass consumption. Exhibit A, Netflix. Point number two, technology always unbuckles tasks from jobs. That says “for” jobs. It should say “from” jobs. That has been the case for over a hundred years as we developed assembly lines in industrial manufacture. It’s always about taking certain things out of the process, automating them to make them more efficient. Digital technology does exactly the same thing, nothing new.

The third point is that platforms now exist and platforms both broaden markets to be global but also deepen local markets and bring in people to interact in transactions in a way that they did no do before. And finally, technology as we know both replaces and creates jobs. It has done that in wave after wave of technological change. This one is no different.

How does mass consumption happen without mass production? Through this whole cluster of digital technologies: 3D printing, algorithms, platforms, telepresence, blockchain. All of these augment the possibility of and demand for on-demand labour. More jobs can be offshored, more can be on-shored and you get more just-in-time labour by introducing more digital interactions in the process of production.

When you break supply chain that way, make contracts for supply chains shorter, contract for a task rather than a job, you increase more volatility in supply chains. That is particularly underscored by the fact — I mentioned just a minute ago free trade. Four decades of working on globalization as a way of improving consumer welfare by reducing prices meant that jobs left rich countries and went to emerging economies.

This round of technology permits us to climb up the ladder and hit a group of workers that were insulated from that wave of offshoring and globalization. The people I’m talking about are accountants and lawyers and engineers and all these white collar, high paid workers, medical diagnosticians. Maybe they’re not all professionals but you’re including medical diagnosticians, you’re talking about translators. All of these things are jobs that are now capable of being done by people somewhere else in the world or through an algorithm or what they call artificial intelligence – basically coding.

It also permits more people to work from home and that means as we’ve seen in the pandemic because of telepresence and platforms that if you can work from home, you can work from anywhere in the world. We’re not seeing that yet but that’s a real potential that the pandemic will have accelerated. When we talk about platforms creating new and deeper and broader markets, we’re seeing all sorts of people that do more side hustle because they can. We don’t know if that’s going to replace better jobs but it certainly increases the potential for moms working at home or people working afterhours or retirees deciding to pick up a few shifts in their car. Side hustle is more of a thing, so that deepens local markets but it also broadens markets. Because if somebody speaks the same language as you and puts in a bid to write your code or create your website or edit that piece of work or write a piece of work, any of those type of jobs that you might be putting out there for auction, it can be done from anywhere in the world.

We’re suddenly talking about globalized markets as well as deepened markets at home and technology as I said, replaces labour but it also creates more jobs. So we don’t know what the net outcome will be but it could be that it replaces more labour here than it creates. We don’t know. Stay tuned.

Digital technologies also transform the way we consume things. We consume things less steadily and more on-demand and when things become more volatile, they tend to shrink over time as an amount. More volatility usually means less of something. More volatility in consumption could very well mean less GDP. We don’t know whether digital will substitute or complement what we’ve got. Get into that in a minute. We also don’t know if digital will replace higher cost with lower cost options. But the last point I’ll leave with you on this is that whereas trade in goods and services, especially in goods, lowered prices, it increased volumes. You could measure that in more GDP. That might not be the casein terms of digital technologies. Where we do indeed see higher consumer welfare, we are better off but it’s not measured by GDP.

Let me just walk you through a little bit of this. I did this already for on-demand consumption. Higher value consumption might be occurring but we might be getting less of it. When we’re talking about substituting higher costs of goods and services with lower costs, we’re moving from hotels to Airbnb. Instead of buying new cars and new appliances all the time, it’s possible that we will be able to upgrade our hardware with new software or replace our hardware or parts of it that break down with new software. That may or may or may not become more cheap but I’m just saying it’s unknowable right now which direction we’re going.  But one possibility is lower cost, less planned obsolescence in the hardware.

And then we are talking about the shift from physical to digital. That’s for journalism and music would be the things that you all probably have done yourself. That’s what I mean by consumer welfare could increase even as GDP falls. We could be getting far greater quality and more variety and bespoke quality, the things that you want that are perfect for you. Your consumer welfare could go up even though the cost of what you’re consuming goes down and that tends to reduce GDP.

We’ll do digital technologies impact on trade. How does digital impact exports, mass versus bespoke production, competition in global supply chains, services, and data localization? Experts are lowered possibly because it is possible to do more domestic production, to restore production, to do it at home, do it in your backyard. Who knows where the 3D printer will be? It might be in a library. It might be in a business that has got a monopoly on it in your community. We might find an Uber for 3D printers in a few years but it is possible that we will be 3D printing a lot more stuff and reshoring how we make things.

We know that already we are seeing less mass production. There’s a lot of things that are still mass produced but you can ask for things that are very specific to you now and that means less inventory, less shipping, and less warehousing. All of that has impacts on how things happen in the economy and how much GDP generation is involved in every step.

Global competition will accelerate with more and more use of being able to reveal who else is out there that can design something for you or produce something for you or supply something for you. We are going to discover one another in the world much more easily but what that will mean is that your globalization was based on long-term relationships really at the very beginning with very long-term supply chain contracts. There are still lots of industries that do that but the more we increase global competition, the more it will be easier to reveal somebody that offers you something closer to the specific thing you want and possibly for a shorter price or possibly faster. We are looking at the potential for the duration of supply chain contracts for most merchandise trade to be shortened. That will make contracts even more fluid and that might mean that the contract lot sizes can get smaller too.

And then we’ve got all sorts of new global digital services, Netflix being the one that jumps to mind but even things like — I’ll just leave that there because I’m worried I’m going to run out of time. New trade arrangements have to emerge too in our deals. Think a lot about intellectual property protections but think about the fact that so much of the data that is being collected by colossal firms is about you and you don’t own it. Somebody else owns your data and then when it gets used, the question is, in what country does your data reside? Data localization and storage is becoming an increasing concern for governments whose responsibility it is to provide security and privacy to their citizens. We’ve got some new questions that nest inside of historic questions in trade like intellectual property protections that used to protect businesses. And now we are looking at needing to also protect citizens and consumers. That’s kind of neat.

I’m just going to scan through the highest level of things. Those four channels: production, consumption, exports and just the whole idea of growth or slowth are your top of mind considerations when you think about, what’s the impact of digital economically? But I want you to consider that it also can transform ownership and the transformation of ownership will also transform value generation. Really that largely depends on whether we’re talking about who is it that owns what? If you are talking about something that is very highly competitive globally, one set of things can happen but if there’s a very small number of players that are involved in the delivery of the digital service, something else entirely could happen in terms of our being price-takers. That’s the way economies work.

The other major takeaway for me in doing this work was how much digital technologies work in two directions at once. They actually help price discovery occur more quickly which tends to stabilize prices, but they also facilitate lots of players moving in and out of a market very quickly and that destabilizes prices. What happens at any given moment is the net of those two things. Also the growth in things like blockchain and distributed ledgers is really potentially destabilizing for the major trust institutions like banks and the Bank of Canada in particular. Sovereign currency issuers are all looking at these issues. I urge you to take a look at that. I’m going to just say that we do GDP policy, we do growth policy, we do economic policy based on three major indicators. There are others of course but the three ones that monetary policy and fiscal policy look at are these three and digital technology blurs the interpretive function of those three macro economic indicators. Again, I urge you to look at that section. All of these are like two-pagers.

Finally, if you don’t have reliable macro economic indicators, if you’re missing a lot of information of what’s going on in real time, unclear if it’s more or less true to reality than it was in the past but certainly more questions are being raised about how much do these indicators reflect what is actually going on in time. Then it becomes harder to introduce trusted public policies. The last point I will say is we’re swimming in a sea of data but there’s less public utility of that. The people that are using the data are private sector more so than public sector and that raises a huge challenge to all of us to actually make use of the revolution that is underway.

Just to summarize, demand destruction is possible but that doesn’t mean we will be worse off. Digital technologies tend to be deflationary but what prices fall first matters, whether it’s the price of goods and services or the price of labour. Thirdly, that the impact of these technologies will not happen the same everywhere for everyone, so we need to be very sensitive to who are winners and who are losers, both as consumers and as workers because those two sets of interest are sometimes antithetical to one another. Finally, it is getting very hard to do good public policy even though we are swimming in more and more data. One of the takeaways for me from all of this is if you keep your eye on the prize and try and minimize negative effects and maximize positive effects from the bottom up, you will be offsetting a lot of the problems down the road.

I want to thank you for inviting me to present to you but I also want to thank Policy Horizons for looking around the corner for all of us.