Recent research suggests the major tech platforms have destroyed more value (especially jobs) than they've created.STAFF/AFP/Getty Images
John Rapley is an author and academic who divides his time among London, Johannesburg and Ottawa. His books include Why Empires Fall (Yale University Press, 2023) and Twilight of the Money Gods (Simon and Schuster, 2017).
Canada’s new digital services tax is making waves, albeit for the wrong reasons – notably worries that the U.S. will retaliate with protectionist measures. It’s never a good idea to start a trade war with our southern neighbour, given our asymmetric dependence on them. There’s also reasonable concern over whether it was politically the most sensible thing for Canada to skip ahead of the Organization for Economic Co-operation and Development process that’s trying to create a common, global tax.
However, there’s also a case that Canada’s digital services tax is a sensible approach to the matter and that whatever was done, the Americans would object. They’re currently in a combative mood when it comes to trade, and the American tech industry spends lavishly in Washington advancing their agendas. It didn’t escape notice that few other countries joined the U.S. in objecting to the legislation, mainly because there are no groups of companies as powerful elsewhere as the so-called FAANGs are in the U.S.
And their power is something that concerns all governments. That’s not because there’s something intrinsically wrong with such corporate concentration (although there can be), but because there’s evidence that the pioneering companies of the information age may, left to their own devices, destroy more value than they create.
Economics has long presumed that new technology, while disruptive, ultimately yields net welfare gains for society. While its widespread adoption can kill jobs and even whole towns, as machines replace humans, the argument goes that the rise in human productivity that results ultimately yields new value. That, in turn, creates demand for new goods and services, and thus new jobs.
That rule of thumb arose from the history of the Industrial Revolution. In the 19th and early 20th centuries, the “Satanic mills” so decried by English Romantics ultimately raised incomes, and with that, human well-being. For instance, the automobile, and Henry Ford’s equally pioneering invention of the assembly line, killed off a whole industrial ecosystem in horse-drawn transportation, from grooms to street-sweepers. But it ended up creating far more and better-paid jobs, for auto workers, sales agents, mechanics and gas-pump attendants, to name just a few.
So the prevailing assumption to this day remains that whatever the disruptions and social costs a new technology brings, it will ultimately yield benefits that outweigh them. So it should go for the computer revolution, and all the attendant new technologies it has produced, from the internet and social-media platforms to artificial intelligence.
But so far, the information revolution is proving a damp squib compared with its industrial predecessor. First off, it isn’t revolutionizing output. The trend in labour productivity in developed economies has continued its long downward trend, making the Nobel economist Robert Solow’s 40-year-old quip, that the computer age shows up everywhere but the productivity statistics, as relevant as ever. Even artificial intelligence, about which there is currently so much hype, hasn’t actually registered significant productivity changes yet, and the list of skeptics who doubt it ever will is growing longer.
Second, it may destroy more well-paid jobs than it creates. That’s because software may differ from machinery in fundamental ways. A recent paper from the U.S. National Bureau of Economic Research revealed that while adding equipment raises the labour share of income, adding software reduces it by replacing humans altogether. The benefits of the technology are then captured by its owners, and not the wider society. As a result, the gains of technological progress end up enriching a small elite of owners and tech executives, the growth of whose wealth vastly outstrips the returns to workers.
In short, the rule about technological progress in the industrial age may not apply to the information age, and a rising tide may no longer lift all boats. Instead, technological progress may now benefit the few at the expense of the many. It’s unclear that technology today will raise incomes broadly in the way Ford did when it pioneered the assembly line. The secondary jobs created by a firm such as Facebook or Uber often pay lower wages than those they displace. In the meantime, the companies’ owners have become some of the world’s richest men.
Furthermore, social historians point out that even during the industrial age, the spread of economic benefits resulted less from technological progress than from legislation that ensured the gains of progress were widely distributed, from the legalization of unions to the creation of welfare states. It could be that the Canadian government’s effort to capture a share of the benefits of technological progress in order to distribute them more broadly may not be the right way to do things. But the chorus calling for something to be done will grow louder, and governments will heed it.