Economic growth has been slow in recent decades across developed nations like the United States and United Kingdom. This slowdown has occurred despite major technological advances like the internet and widespread adoption of computers and smartphones. What will it take to usher in a new era of robust economic expansion?
The document examines four prior industrial revolutions beginning with the late 18th century introduction of steam power through the current fourth industrial revolution driven by digital technology and artificial intelligence. Each revolution followed a similar arc, beginning with an installation period of new technology introduction and investment followed by a deployment period of more widespread technology adoption, accelerated productivity growth and higher standards of living.
However, the transition between installation and deployment has never been smooth or automatic. Major shocks like financial crises, wars and pandemics have played a crucial role in compelling businesses and workers to embrace new innovations and set aside old ways of operating. The 2008 financial crisis and 2020 pandemic may have set the stage for the developed world to finally move into the deployment phase of the current AI-driven revolution. But realizing that potential will require overcoming cultural barriers on the part of both workers and business leaders.
Several factors have contributed to the slow growth of recent decades. Investment in both physical and intangible capital like skills training and organizational change has lagged. Policy efforts to boost growth through tax cuts, spending increases and easy monetary policy have fallen short. And workers and businesses have resisted the transformation necessary to deploy new innovations on a wide scale. Turning this around likely requires a new social contract enabling compromise across competing groups.
Small and medium-sized enterprises (SMEs) with under 250 employees generate 60% or more of employment across developed economies. But they have adopted digital technologies like cloud computing far less intensively than large firms. Improving confidence among SME leaders regarding future income potential can encourage the investments in skills, new business processes and AI solutions needed to boost productivity economy-wide. Collaboration between SMEs, government and large enterprises can facilitate this through programs that subsidize technology adoption and training.
While only around 10% of potential applications currently use AI, advances continue to reduce costs and improve ease of use. Rather than focus on limiting job losses from automation, emphasis should be on taking advantage of complementarities between AI and human skills to create new job tasks and business models. And risks around algorithmic bias, security and transparency must be actively managed.
Higher worker engagement through fair compensation, career development and upskilling drives productivity by improving motivation and effort. Younger generations in particular expect personal fulfillment from work, not just a wage. Supporting policies like paid family leave and childcare assistance enable this engagement. But companies also need to prioritize employee retention and satisfaction through new programs adapted to a changing workforce.
Fundamentally transforming how businesses operate and workers approach jobs inevitably creates tensions. But developing an inclusive social contract recognizing each group’s interests can overcome zero-sum thinking to generate shared gains. This means political leaders willing to compromise across divisions, companies creatively leveraging technology while respecting workers, and individuals embracing job and skill changes needed to thrive in a new economic era.
With smart collaboration and openness to change, the pandemic and financial crisis disruptions can provide the impetus to unlock the productivity and wage gains promised by today’s technological innovations. Advanced economies like the United States and United Kingdom may finally shift into an extended deployment phase where prosperity is broadly shared. But business leaders, policy makers and workers all have important roles to play in developing the partnerships and willingness to adapt that underpin this new growth revolution.
