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5 questions for Carl Benedikt Frey on the legacy of innovation | American Enterprise Institute

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Will the rise of robots and artificial intelligence deliver
a prosperous economy? And what policies should we adopt to ensure that all
Americans are included in this prosperity? On this episode, Carl Benedikt Frey
discusses the impacts of technological progress on the economy, past and

Dr. Frey is the Oxford Martin Citi Fellow at Oxford
University, where he teaches economics and economic history. In 2013, he
co-authored a widely-shared paper with Michael Osborne titled “The Future of Employment: How Susceptible Are Jobs to
” in which he estimated that 47 percent of jobs were
susceptible to automation. This year, he returned to the subject with his new
book, The Technology Trap: Capital, Labor and Power in the Age of

Below is an abbreviated transcript of our conversation. You
can read our full discussion here. You can also subscribe to my podcast on iTunes or Stitcher, or download the podcast on Ricochet.

Pethokoukis: What do
you think about the people — such as presidential hopeful Andrew Yang — who try
to give the public very specific timelines as to when innovation is really
going to hit the economy the hardest?

Frey: I think anyone who tries to put the timeline on how
fast automation might happen is bound to be wrong. It will always involve the
human factor — organizations, legislation, and people will have to adjust and
get used to working with the technology. I don’t think there’s a way of trying
to estimate how fast that will happen here.

So if it’s nearly
impossible to make an accurate prediction about what automation will do to the
economy and to society at large, then are we right to even worry about it at

Automation will definitely hit people who won’t find new
jobs very easily. But I think the story has not been one of rising
technological unemployment with 47 percent of jobs disappearing and leaving
people unemployed.

The story has been one of deindustrialization, and creating
a situation where the outset of opportunities for, primarily, men with no more
than a high school degree have steadily deteriorated. And I think the truck
driver example is a case-in-point continuation of that.

So it’s not high-skilled and high-income jobs that are the most exposed to automation going forward. It continues to be a lot of manual, middle-income jobs that will most likely continue to put pressure on the wages of those with no more than a high school degree.

A common comeback to concerns about automation is that technology replaces old jobs with new ones — Henry Ford put lots of wagon–makers out of business, but he also created new jobs for people to fill. But many of these automated, mechanized innovations don’t create as many jobs. What do you make of the argument, that, for instance, Netflix only employs 5,500 people whereas old-school video stores employed nearly 100,000?

Cylinders incubate salmon in the hatchery at the Cargill research center in Dirdal, Norway. REUTERS/Clodagh Kilcoyne

Well, it does tell you that there are fewer people in one
certain domain, but it doesn’t tell you anything about the economy as a whole.
And I think that lots of people miss a step here.

Yes, the smokestack industry of the late 20th century did generate a lot of jobs. Meanwhile, if you look at software engineering, there are not that many people employed in those industries and occupations directly. But those people tend to earn quite high wages, and their incomes support a lot of jobs in the local service economy — people go out, take a taxi, go to a hairdresser, go to a shop, and so on.

And as research by Enrico Moretti suggests, that creates, on
balance, five new jobs in the local service economy. So often when we see such
examples, people haven’t thought too much about the secondary effects.

So if many of the
tasks associated with middle-and-high-income jobs are going to be automated, what
is going to be left for the average person to do for their career?

It is a concern — as I mentioned earlier, we do see jobs
emerging in the very skilled technology sectors where those people, as their
wages rise, tend to demand in-person services which are hard to automate.

There is probably concern that there’s going to be an
economy of software engineers and hot-yoga instructors. But I think there is a
lot more to that story.

So, clearly, a lot of jobs are going to appear that we
haven’t even conceived of yet. And also I think it’s important to remember that
many of these in-person service jobs are actually more pleasant. It’s nicer to
work in a restaurant or a gym than in a factory, and I think there’s a lot of
non-monetary factors that we need to consider.

For all the good that
technology has done in the modern era, we’re still at a strange spot
economically where our growth numbers are rough. Does that give you pause, or
make you think, “Maybe we’re not making that much progress after all”?

I think what economic history quite clearly shows is that it
takes a long time for technology to give a boost to productivity. Businesses
need to figure out how to productively use the technology and rearrange their
production processes accordingly.

If you take the electric motor, for example: In the early
days of factory electrification, companies merely replaced the steam engine
with an electric motor as the essential power source in the factory. All of the
shafts and counter-shafts that posed constant threat to peoples’ fingers, arms,
and lives remained intact.

I think we’re at a similar stage with artificial
intelligence today. Many of the AI technologies are just not sufficiently good
yet, but it’s important to remember that, to go back to the steam engine, the
early engines were mainly used to drain coal mines, and even then they didn’t
do particularly well. But eventually they became the prime motors of the first
industrial revolution.

So I’m not particularly concerned about the potential future, or the potential of productivity growth.

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